Insights 
VT 
A new examination of US consumer trends will be revealed with the May retail sales report. The report is set to be released shortly.
Despite a decrease in consumer confidence, affluent American consumer spending has remained strong this year. There is a noted disconnect between consumer sentiment and their spending habits.
May Retail Sales Expectations
It is anticipated that overall figures for May will show a 0.7% decline in the headline number. Meanwhile, a 0.3% increase is expected in the control group, which does not include autos, gasoline, and building materials.
The incoming May retail sales report is expected to highlight a more detailed picture of where demand pressure may be mounting or easing. Despite a swell of pessimism in consumer surveys, upper-income households have largely upheld consumption patterns, which points to an uneven distribution of economic stress. This divergence between what consumers say and how they act has implications for inflation forecasts and the expected path of monetary policy.
The headline number, judged on a month-on-month basis, is forecast to slide by 0.7%. This broad measure includes categories like automobiles and fuel, which tend to be more erratic due to price swings and seasonal adjustments. A decline of this size should not be seen as a blanket slowdown in demand. Rather, it shows a recalibration in spending priorities. Some areas—particularly discretionary and non-essential categories—are now feeling the effects of tighter credit conditions and high borrowing costs.
The control group, in contrast, is expected to grow by 0.3%. This particular sub-measure removes more volatile components and aligns more closely with how consumption is factored into GDP calculations. This modest increase reflects the continued resilience in core consumer purchasing behaviour, notably within services and day-to-day goods. In short, the decline in the all-in figure doesn’t negate the underlying firmness in the segments that contribute to fundamental economic growth.
Interest Rate Expectations Ahead
For those of us operating within forward-looking models of interest rate expectations, the readings are an important checkpoint. A rebound in the control group—no matter how subtle—adds weight to the argument that demand is still holding its own and may make policymakers more cautious in calling a shift toward easing. On the other hand, a deeper-than-expected decline would challenge assumptions about consumer durability and could accelerate pricing of lower policy rates in the coming months.
Powell earlier noted that although progress has been patchy, there’s still work ahead in achieving the desired inflation trajectory. Traders would be wise to watch price reaction across the 2s10s curve. A flatter curve post-release may indicate that the market perceives tightening effects to be fully absorbed, while any steepening could reopen the discussion on back-loaded policy risk.
We are in a data-dependent stretch, and the May figures feed directly into real-time indicators of macro vitality. Treasury yields, especially those at the short end, remain sensitive to marginal surprises. Options volumes around key expiry windows also suggest heightened positioning asymmetry, with implied volatility reflecting a bend toward protective plays rather than directional bets.
As we parse the release, volume anomalies across shorter-dated options and sector-specific ETFs can help filter areas where demand elasticity is shifting. If the data infer that higher-income spending remains robust, allocations toward specific consumer discretionary exposure might stay supported—but not uniformly. Our eyes will also be on inventory-related components, as firms confident in forward demand may begin restocking ahead of the fourth quarter.
As always, market reaction should be considered in light of upcoming catalysts, particularly as we approach the next FOMC communication window. A print near expectations may initially dull directional conviction, but underlying flows continue to point toward cautious recalibration rather than abrupt repositioning.
