US July retail sales seen up 0.3% as rate-hike bets fade

US retail sales due at 8:30 a.m. ET Friday are expected to rise 0.3% in July, testing whether consumer spending can hold up after flat producer prices and a surprise payrolls drop cooled bets on a September rate hike.

"Retail sales close out the week's inflation-and-consumption trio and offer the clearest read yet on whether the consumer is holding up under the current rate environment," Kraken's economic brief said, a question sharpened by July's weak jobs report.

The U.S. Census Bureau's advance reading is expected to show a 0.3 percent month-over-month gain, accelerating from 0.2 percent in June, according to consensus forecasts. The release follows July PPI, which was unexpectedly flat against a 0.2 percent forecast, with the year-over-year gain slowing to 4.7 percent from 5.5 percent. Core PPI rose 0.2 percent, below the 0.3 percent expected. Consumer spending accounts for roughly 70 percent of US gross domestic product, which grew at a 1.5 percent annualized pace in the second quarter, down from 2.1 percent in the first.

A stronger-than-expected print would support the Federal Reserve's hawkish minority, which pushed for a rate hike at the July 28-29 meeting in a 9-3 vote, the first three-way same-direction dissent since September 2016. A soft reading would reinforce bets on a hold or cut at the September 15-16 meeting, after nonfarm payrolls fell by 23,000 in July against a forecast gain of roughly 83,000, with May and June revised down by a combined 103,000.

Rate Path Hinges on Consumer Resilience

The retail sales release lands alongside June business inventories, expected to rise 0.3 percent, and the preliminary August University of Michigan consumer sentiment index, forecast to fall to 54.2 from 55.2. Together they will shape the Fed's rate path heading into the September 15-16 meeting.

The data carry added weight because the July jobs report, released August 7, showed nonfarm payrolls falling by 23,000 against a forecast gain of roughly 83,000, with May and June revised down by a combined 103,000. That weakness, combined with cooling producer prices, has shifted the debate from whether the Fed will hike to whether it can hold. The CME FedWatch tool now prices a 34.8 percent probability of a September hike, down from 40 percent immediately after the PPI release.

The last time retail sales came in below expectations, household savings rates were already declining and credit card debt mounting, according to BigGo Finance. If July confirms a slowdown, expectations for Fed rate cuts could strengthen further, pressuring the dollar and supporting gold, which traded near $4,350.

Oil prices remain supported by geopolitical risk, with WTI crude near $81.6 and Brent near $87.2 after a tanker attack near the Strait of Hormuz and expectations of escalated US sanctions on Iran. Bitcoin traded near $62,800, below $63,000, with capital flowing more into US equity themes such as AI and semiconductors than into crypto assets.

The S&P 500 set another record closing high Thursday, and futures were mixed Friday morning, with Dow futures down 0.14 percent, S&P 500 futures up 0.1 percent and Nasdaq 100 futures up 0.23 percent. A retail sales print that surprises to the upside would likely extend the equity rally by easing recession fears, while a miss could revive concerns that the economy is cooling faster than the Fed's hawkish minority expects. The next major test comes August 19, when the Fed releases minutes from the July meeting, followed by the second estimate of second-quarter GDP and Nvidia's earnings on August 26.

This article is for informational purposes only and does not constitute investment advice.