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Pull forward spending from Amazon's 2024 Prime Day and competing events may skew the data
Coming off back-to-back days that contained favorable July inflation data that supports the start of Fed rate cuts, today’s data shifts the focus back onto the strength of the economy. What hangs in the balance is the market’s thought the Fed could deliver a 50-basis point rate cut following its September policy meeting. While the continued progress on the inflation front gives the Fed the all-clear to start a rate-cutting cycle, the latest update for the Atlanta Fed GDP Now model that puts 3Q 2024 GDP at 2.9% pushes back such a sizable first cut.
Because the GDPNow model is a rolling forecast, it will be updated as new data is published and that includes today’s July Retail Sales and Industrial Production report. The consensus forecast is for July Retail Sales ex-autos to rise just 0.1% compared to June, but remembering Amazon’s (AMZN) 2024 Prime Day was held July 16-17 and was bookended by competing retailer events, that expected sequential increase could be… conservative. That should spike non-store retailer sales, but comparing that figure against the other report categories will give a better indication of overall spending in July. While the report’s headline figures should be good for GDP revisions in the very near term, the pull forward in spending those shopping events created could result in softer sequential comparisons when the August Retail Sales report is published in mid-September.
If our thinking is correct about the July Retail Sales report, it could take some of the recent wind out of the market.
If we’re wrong, and the report is weaker than expected, there will be renewed concerns about the consumer and the speed of the economy. In the vein of bad news is good news, that could fan the flames for those looking for a larger rate cut in September.
When it comes to getting a more accurate read on the consumer and spending, quarterly results and guidance from Walmart(WMT), Tapestry (TPR), and Dillard’s (DDS) will be more insightful. To that, we can add what’s to be gleaned from Estee Lauder (EL), Macy’s (M), Target (TGT), TJX Companies (TJX), and Ross Stores (ROST)when report next week. Odds are what we hear will be constructive for our Cash-Strapped Consumermodel, but to the extent these companies issue conservative or otherwise underwhelming guidance, it means another round of downward revisions for expected 2H 2024 EPS for the S&P 500. This could revive investor contemplation over the current market multiple as we close out August.
Getting back to today, we’ll also be digging into what Deere (DE) and Applied Materials (AMAT) have to say, and those comments are potential fodder for our Precision Ag & Agri Science and CHIPs Act models.