Consumers defied expectations in June and came back to the checkout counter, or rather clicked the checkout box. While retail sales were flat in June, this was better than the expected decline of 0.3%. Even better, May sales were revised three times higher, from 0.1% to 0.3%. June sales were actually stronger when the 2% drop in auto sales is removed from the equation, pushing sales up 0.4%, the most in three months. The control group sales, which flows into the GDP calculation, rose 0.9%, matching the largest increase since April 2023. Consumers appear to be taking advantage of lower prices and widespread discounting, especially in areas where they have been holding back. Building materials stores, internet sales and health stores had the largest increases in June. Only three of the 13 major categories in the index posted declines – gasoline, sporting and book stores, and autos. The report shows that the consumer remains resilient in spite of year-over-year higher prices while being more cautious where the dollars are spent. Spending at restaurants and bars, the only services category in the index, posted a smaller gain for the second month in a row, signaling less spending on discretionary items.

Beige Book – The Fed’s Beige book showed slight economic growth and cooling inflation in the past six weeks, giving the Fed more reason to make a rate move in September. The Federal Reserve report, compiled this time by the FRB of Richmond, said the economy grew at a slight pace, with a number of the Fed districts noting flat or declining activity. Employment increased only slightly, labor turnover fell, and wages grew at a modest to moderate pace in most districts. Almost all districts mentioned retailers were discounting items and price-sensitive consumers were buying only the essentials.

Last Words from the Fed – Fed officials will be entering a lock-out period this weekend as the July FOMC approaches on July 30-31. This week was full of comments to last us through next week, though. All remarks seem to have the same theme – the Fed is gaining the confidence it needs to begin lowering interest rates.

FRB NY President John Williams: Data from the last three months is “getting us closer to a disinflationary trend that we’re looking for,” he said. “These are positive signs.”

FRB Governor Christopher Waller: “I do believe we are getting closer to the time when a cut in the policy rate is warranted.”

FRB Chicago President Austan Goolsbee: suggests the central bank may need to lower borrowing costs soon in order to avoid a sharper deterioration in the labor market, which has cooled in recent months.