16.07.2026 - Consumer are still Spending, but
The latest US retail sales report confirms that consumers are still spending despite higher interest rates and persistent inflation concerns.
Retail sales rose 0.2% in June, exactly in line with economists' expectations. Lower gasoline prices reduced receipts at service stations, while motor vehicle sales accelerated and online spending remained strong, highlighting continued resilience in consumer demand.
The labor market also continues to hold up. Initial jobless claims fell to 208,000, well below the consensus estimate of 217,000, suggesting companies are still reluctant to lay off workers.
Neither report points to an economy in urgent need of support. Consumers are still shopping, and businesses continue to retain employees.
Markets: almost no market impact by latest numbers
My View: The headline numbers look reassuring, but they don't tell the whole story.
Beneath the surface, the financial health of many US consumers continues to deteriorate. Auto loan delinquencies remain elevated, student loan repayments are becoming an increasing burden again, and credit card balances with missed payments continue to rise, levels seen before financial crises in 2008.
Consumers are still spending, but many are doing so with increasingly stretched balance sheets.
If gasoline prices continue to climb, disposable income will come under further pressure. Higher fuel costs, elevated mortgage rates, and expensive consumer credit leave households with less money for discretionary spending. More and more Americans are being forced to focus on essential expenses rather than optional purchases.
For now, this is close to the outcome the Federal Reserve has been hoping for: inflation is easing without a sharp deterioration in employment or consumer demand. Following two encouraging inflation reports this week, today's data further strengthened the case for keeping interest rates unchanged at the July meeting. Markets now assign roughly a 90% probability that the Fed will leave rates unchanged.
However, I continue to believe that the Fed risks falling behind the curve.
The recent improvement in inflation was helped significantly by lower energy prices. Yet that support could disappear quickly if oil prices remain elevated, or rise further as geopolitical tensions persist. In that case, the recent decline in inflation may prove temporary, and July's inflation data could surprise to the upside.
If that happens, the market's confidence in imminent policy easing could be challenged once again.
While the economy still appears headed for a soft landing, the same cannot necessarily be said for some of today's highly valued technology stocks. They remain priced for near-perfect conditions, leaving little room for disappointment if inflation or interest rates move higher.
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