Retail Sales Beat Expectations
The latest retail sales report came in stronger than anticipated, surpassing forecasts across multiple readings. The headline figure was expected to rise 0.5% but instead climbed 0.9%. Excluding vehicles, sales rose 0.8% against an expected 0.5%. Excluding both vehicles and gas, sales rose 0.5% versus an expected 0.4%. This data, sourced from the Census Bureau, represents the strongest annual rise in retail sales since January of 2023.
A key question is how much of this strength was genuine consumer demand versus more volatile categories such as gasoline. The honest answer is that higher gasoline prices mechanically lift retail sales figures, because the dollar value of fuel purchases feeds directly into the totals. Energy touches so many different parts of the economy that it can swing the headline number meaningfully. The clear driver that pushed the figure from a modest expected gain up to 0.9% was gasoline prices.
Broken down by segment, the growth was broad-based:
- Gas stations: up 3.4%
- Miscellaneous stores: up 2.3%
- E-commerce: up 1.5%
- Motor vehicle parts: up 1.2%
- Furniture: up 1.0%
While gasoline was the standout leader, gains were spread across categories, reinforcing that the employed US consumer is still actively spending.
The Resilient American Consumer
Does this report further confirm consumer strength? Yes. Even though sentiment surveys have been slumping, actual spending data tells a different and more positive story. This is essentially the "unstoppable American consumer" at work. Corroborating evidence arrived about a week earlier in the form of the Bank of America Consumer Checkpoint, which showed big jumps in both credit card and debit card spending. Taken together, the picture is of a fundamentally healthy US consumer.
"Michael Jordan with a Sprained Ankle"
A useful metaphor for the current state of the US economy is Michael Jordan with a sprained ankle. The underlying performer — the consumer and the broader economy — is operating at an elite level. The "sprained ankle" is the disruption caused by elevated gasoline prices, which have been a drag on activity.
The encouraging development is that gas prices are now coming down. If that trend continues, it could remove the one nagging injury holding the economy back and potentially unleash stronger activity in the second half of the year. Strip out gasoline — the sprained ankle — and the data, the earnings, and essentially every other measure of the US economy look genuinely strong. This retail sales report is just one more confirmation that the US economy is very strong.
A New Fed Chair Takes the Stage
Attention now turns to a pivotal Federal Reserve day, marking Kevin Warsh's first press conference as Fed chair. How much clarity should markets expect from the FOMC decision? The session will reveal a great deal about Warsh himself and his communication style — specifically, whether he comes in gently, using a "feather" in his press conference, or whether he wields a "sledgehammer."
He is likely to address a wide range of topics he has previously discussed, including interest rates, the balance sheet, central bank communication, the dot plots, and the trimmed mean. With so much ground to cover, this is a press conference worth listening to from start to finish given the sheer volume of information likely to emerge. It will probably begin with his opening commentary, and dissents within the committee are a real possibility at some point.
Because of all these moving parts, the market is expected to react repeatedly as Warsh speaks. The window from roughly 1:30 to 2:30 Chicago time (2:30 to 3:30 Eastern) is anticipated to be incredibly volatile, as traders parse both what he says and how the market responds in real time.
US–Iran Rhetoric and Pressure Diplomacy
How should markets interpret the latest US–Iran rhetoric? The key framework is that the Trump administration — and President Trump in particular — believes in pressure at every point, no matter what. Ahead of signing an MOU on Friday, the strategy is to apply maximum pressure on Iran: signaling that if any part of the deal is unsatisfactory, bombing could resume. This is a deliberate negotiating tactic designed to bring Iran to the table and secure the terms the administration wants. It is fundamentally a negotiation built on pressure.
Crude oil is reacting to this rhetoric, and a couple of the risk-off metrics are responding as well. Ultimately, however, this posturing should be read as pressure aimed at achieving the best possible outcome for the United States, rather than as a signal of imminent conflict.
