Synopsis:

CIBC reacts to today's US retail sales print, noting that despite stronger-than-expected sales in July, the Federal Reserve remains on track to cut rates in September as inflation trends downwards and the job market cools.

Key Points:

1. Retail Sales Exceed Expectations:

   • Total retail sales in July increased by 1.0% month-over-month, surpassing expectations of a 0.4% gain. This follows a slight downward revision for June, which saw a 0.2% decline.

2. Auto Sales Influence:

   • A significant rebound in auto sales (+3.6%) contributed to the stronger headline figure. This follows a previous drop in June (-3.4%) caused by a software glitch at car dealerships.

3. Control Group Sales:

   • The control group of retail sales, which excludes autos and feeds into GDP calculations, rose by 0.3%, beating the expected 0.1% gain. This follows a strong 0.9% increase in June.

4. Implications for Consumption Growth:

   • In inflation-adjusted terms, the control group sales rose by an estimated 0.4% in July, suggesting a strong start for consumption growth in the current quarter.

5. Fed Rate Cut Outlook:

   • Despite the strong retail sales, CIBC believes the Fed remains on track for a 25bps rate cut in September, given the overall trend towards target inflation and a gradually cooling job market.

Conclusion:

CIBC maintains its outlook for a September rate cut by the Fed, as the positive retail sales data is balanced by ongoing progress towards inflation targets and a cooling labor market.