Financially stressed consumers are ushering in an economic slowdown
Wednesday’s retail report is another piece of evidence that the economy is slowing. That’s good in the sense that it doesn’t give retailers the ability to pass along higher prices to consumers if they aren’t willing to accept them, which had previously been the case.
“But if that transitions into a deeper slowdown it could herald some economic problems that markets would not welcome,” Seema Shah, chief global strategist at Principal Asset Management, said in a note on Wednesday. For the time being though, she said the retail sales report gives the Fed more of a reason to ponder cutting interest rates at upcoming meetings.
Many economists now feel that the Fed could cut interest rates as soon as September.
The much weaker-than-expected retail sales data comes as the nation’s unemployment rate ticked up last month to 3.9% as the pace of hiring slowed. Also, the number of people applying for first-time unemployment benefits recently rose to the highest level since August.
The weakening labor market is causing consumers to act with “more prudence,” EY senior economist Lydia Boussour said in a note Wednesday.