US: Retail Sales


Wed Feb 14 07:30:00 CST 2018

Consensus Consensus Range Actual Previous Revised
Retail Sales - M/M change 0.3% 0.0% to 0.5% -0.3% 0.4% 0.0%
Retail Sales less autos - M/M change 0.5% 0.1% to 0.8% 0.0% 0.4% 0.1%
Less Autos & Gas - M/M Change 0.3% 0.2% to 0.5% -0.2% 0.4% 0.0%
Control Group – M/M change 0.3% 0.2% to 0.5% 0.0% 0.3% -0.2%

Highlights
Retail sales not only proved very soft in January, but a sharp downward revision to December looks certain to pull down what had been outstanding strength for consumer spending in fourth-quarter GDP. Retail sales fell 0.3 percent in January compared to Econoday's low estimate for no change. December is revised down 4 tenths to unchanged with November, adding insult to injury, also revised down, 1 tenth lower to what is still an outstanding gain of 0.8 percent.

All three months show declines for the leading component which is motor vehicles, falling a very sharp 1.3 percent in January. The weakness here no doubt is the result of replacement demand following the hurricane season which pulled sales forward. Building materials are also weak, down 2.4 percent and in this case possibly reflecting January's unusually severe weather. But however bad the weather was it didn't help nonstore retailers, a component that is dominated by e-commerce and which proved dead flat in January with December's initial surge of 1.2 percent revised down to a much more moderate looking 0.5 percent.

Clothing sales, which had been very soft, rose 1.2 percent in the month, echoing this morning's consumer price report where apparel prices posted a sudden jump. Restaurant sales, which had been strong, were unchanged while furniture sales wobbled for a second month, down 0.4 percent.

The downward revision to December turns what had been a solid holiday shopping season into a so-so season. Control group sales, which are a direct input into GDP, did rise a very strong 1.2 percent in November but are now down 0.2 percent for December with January limping in at no change. After today's report, the consumer sector gets a one-notch downgrade from strong to solid.

Market Consensus Before Announcement
Unit auto sales proved very weak which is expected to hold down January's retail sales gain to a moderate 0.3 percent. When excluding autos, however, sales are expected to show a seventh month of solid strength, at a consensus gain of 0.5 percent. When excluding autos and also gasoline, where higher prices are a positive for the month, sales are expected to move back down to a 0.3 percent gain. When also excluding food services and building materials, control group sales are also expected to come in at a 0.3 percent gain.

Definition
Retail sales measure the total receipts at stores that sell merchandise and related services to final consumers. Sales are by retail and food services stores. Data are collected from the Monthly Retail Trade Survey conducted by the U.S. Bureau of the Census. Essentially, retail sales cover the durables and nondurables portions of consumer spending. Consumer spending typically accounts for about two-thirds of GDP and is therefore a key element in economic growth.



Description
Consumer spending accounts for more than two-thirds of the economy, so if you know how the consumer sector is faring, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.

The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth becomes excessive and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps auto sales are especially strong or apparel sales are showing exceptional weakness. These trends from the retail sales data can help you spot specific investment opportunities, without having to wait for a company's quarterly or annual report.

Balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Retail sales growth did slow down in tandem with the equity market in 2000 and 2001, but then rebounded at a healthy pace between 2003 and 2005. By 2007, the credit crunch was well underway and starting to undermine growth in consumer spending. Later in 2008 and 2009, the rise in unemployment and loss of income during the recession also cut into retail sales. Spending rebounded in 2010 and 2011 but was constrained by lingering high unemployment.

Importance
Retail sales are a major indicator of consumer spending trends because they account for nearly one-half of total consumer spending and approximately one-third of aggregate economic activity.

Interpretation
Strong retail sales are bearish for the bond market, but favorable for the stock market, particularly retail stocks. Sluggish retail sales could lead to a bond market rally, but will probably be bearish for the stock market.

Retail sales are subject to substantial month-to-month variability. In order to provide a more accurate picture of the consumer spending trend, follow the three-month moving average of the monthly percent changes or the year-over-year percent change. Retail sales are also subject to substantial monthly revisions, which makes it more difficult to discern the underlying trend. This problem underscores the need to monitor the moving average rather than just the latest one month of data.

In an attempt to avoid the more extreme volatility, economists and financial market participants monitor retail sales less autos (actually less auto dealers which include trucks, too.) Motor vehicle sales are excluded not because they are irrelevant, but because they fluctuate more than overall retail sales. In recent years, many analysts consider the core series to be total less autos and less gasoline service station sales. The latter is volatile due to swings in oil and gasoline prices.

Price changes affect the real value of retail sales. Watch for changes in food and energy prices which could affect two large components among nondurable goods stores: food stores and gasoline service stations. Large declines in food or energy prices could lead to declines in store sales which are due to price, not volume. This would mean that real sales were stronger than nominal dollar sales.

Since economic performance depend on real, rather than nominal growth rates, compare the trend growth rate in retail sales to that in the CPI for commodities.