December US Retail Sales

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The big event on the American economic calendar today was supposed to be the release of retail sales data by the Census Bureau at 08:30 EST (14:30 CET). However, due to the shutdown, the data won’t be released and has been rescheduled until after the shutdown. Since a specific new data hasn’t been given, here’s what you might want to keep in mind for when the data is eventually released.

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How it affects markets

The data to be released is compiled from a survey of retail outlets to find out how much they sold the prior month. It resembles total consumer spending, which is important because consumers are the bulk of the US economy, and can be seen as a gauge of overall economic health. Generally speaking, better retail sales data translates into dollar support, despite increasing sales seen to also support inflation – it’s just that the positive of economic growth seems to outweigh the concerns about potential price increases.

Retail sales data can also have an impact on the stock and bond markets, which indirectly implicate forex. Since a lot of the major US index companies are consumer-dependent, a drop in retail sales could signal a potential miss in earnings expectations. A drop in the stock market usually moves assets into bonds, pushing down yields. However, because the dollar is seen as a safe-haven, often economic problems translate into dollar strength.

Expectations

The star of the event is the Retail Sales Ex-Auto figure, which strips out the more volatile auto sales component and gives a better look at the underlying economy. Revisions in the prior numbers can also move the market. During the last release, data came bang in line with expectations, but the prior month was revised higher (which had already been extraordinarily positive). Current consensus is for a repeat of growth at 0.2%, same as the preceding month.

The next number to look at is the total retail sales number, which doesn’t usually have as much impact on the market. The comparison between the two gets analysts attention, especially now with concerns regarding the car market, and auto financing. Preliminary sales data for US automakers indicate that sales have been exceptionally good. Nevertheless, the consensus among analysts is that retail sales will have increased 0.2% month over month, just like the prior month (that also came in line with expectations)

Then we have the retail sales control group, which strips off not only auto sales but also energy and construction. This would be the best gauge of underlying retail sales trends without the more volatile sectors and is most used for looking at longer term trends. On this occasion, the control group is expected to increase by 0.7%, compared to a jump of 0.9% in the prior month.

Consideration

During December, the price of crude has wandered back up, and this likely will be reflected at the pump as well as support retail sales data. Last month’s sales increase was driven primarily by furniture and electronics, so we’ll see if that was a one-off, or it continues to be a trend.

December also gets extra attention because of Christmas shopping, where initial reports haven’t been as good as expected. A disappointment in retail data might lead to a depressed outlook for major US retailers, and further support the idea that inflation is not a concern at the moment.

Two sectors in focus are the aforementioned auto sales which staged a bit of a recovery last month, and construction, which declined last month. Construction typically slows in the winter, but the housing market remains a matter of concern, given the increases in interest rates. Analysts will want to know if there is any forecast of trouble in that market that might be read in the sales data.

 

Generally speaking over the last few months, core retail sales have remained strong, allowing investors to discount momentary fluctuations in the more volatile numbers. With the control group remaining above the other data, it’s indicative that negative fluctuations are mostly short-term, and are keeping a lid on potential inflation impacts.

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