Retail sales rose 0.9%, but look who's spending

Retail sales rose 0.9% in May to $763.7B and 6.9% year over year, beating forecasts. Read it carefully: with inflation at 4.2%, most of that yearly gain is just higher prices, gasoline most of all — see the monthly CPI breakdown. The bigger question is who's spending: economists peg the strength to higher-income households, not the credit-sensitive borrower. That cohort is financing necessities at 21% card APRs while real wages lag, so aggregate resilience is not balance-sheet health. Watch revolving balances and the saving rate against this print, and note the feedback loop with this week's hold — officials cite strong spending to stay restrictive, keeping variable card APRs near 21% with a hike now the bigger risk, no relief for the borrower already running on the card.

Manheim firms in May; off-lease EVs the standout

• Per Cox Automotive, the Manheim index rose 0.3% MoM to 212.6 in May, recovering from April's 1.6% drop — the first decline in six months; values +3.6% YoY.
• EVs led hard — EV index +3.5% MoM, +11.9% YoY — while the non-EV index was flat MoM, +3% YoY; wholesale days' supply ticked to 26.
• Firmer wholesale supports recovery rates on defaulted collateral and residual realizations as off-lease EV volume builds — credit-supportive against the DQ backdrop.
• Watch used-vehicle CPI and summer gas prices, which Cox flags as the demand pressure into early summer.

Source: Cox Automotive · Jun ↗

Student-loan defaults return, but the ABS hit is indirect

The New York Fed counts about 3.6 million federal borrowers newly in default across the last two quarters, the past-due share back above 10%. The ABS read-through is thin: these federal loans sit with the government, not in deals, and securitized FFELP is guaranteed, so defaults are a guarantor and prepayment story, not a loss to bondholders. The signal is the spillover: among these defaulters, more than half of cardholders and about 40% of auto borrowers are already behind — watch the credit-card 30+ DQ rate — and that paper fills ABS pools. The defaulters are just 2% of all borrowers, so it's an early warning for subprime card and auto, not systemic. Their credit scores fell 91 points, locking 3.6 million out of new credit. New flows have crested, but 7 million SAVE borrowers re-entering repayment are the second-wave risk. One aside: the Fed switched its score gauge to VantageScore 4.0 this quarter, rebasing the series going forward.

Source: NY Fed Liberty Street · May 12 ↗