US: Dismal retail sales indicate widespread slowdown in consumer activity – Nomura

Research Team at Nomura, notes that the US retail sales declined 0.3% m-o-m in August (Nomura: 0.0%, Consensus: -0.1%) following a revised 0.1% m-o-m increase in July (previously reported as 0.0%).

Key Quotes

“The slowdown in consumer activity was widespread. Consistent with the auto sales report earlier in the month, spending on motor vehicles and parts was weak, declining 0.9% m-o-m following a 1.7% m-o-m increase in July. Also, sales at gasoline stations declined by 0.8% m-o-m as gasoline prices trended lower in August.

Consumer spending wasn’t much better in other categories. Retail sales excluding auto and gas were down 0.1% m-o-m in August while core retail sales, which excludes various volatile components, also declined 0.1% m-o-m.

Demand for furniture (-0.7% m-o-m), health and personal care (-0.1% m-o-m), sporting goods (-1.4% m-o-m), general merchandise (0.0% m-o-m), and miscellaneous goods (-2.4%) all slowed in August. Similarly, department stores and non-store retailers reported decline in sales of 0.6% m-o-m and 0.3% m-o-m, respectively.

Purchases of clothing (+0.7% m-o-m) and spending at eating and drinking places (+0.9% m-o-m) did pick up in August, but it followed weak performance in July.

Overall, today’s retail sales figures suggest that the weakness in consumer demand in July carried over into August. Moreover, the August industrial production report showed that utilities production dropped off sharply, likely owing to weaker consumer demand for energy services. Taking these factors into account, personal consumptions appears to be track to grow around 2-2.5% for Q3, a step down from the Q2 real PCE figure of 4.4%. Given the slowdown in consumer demand and overall soft data for August, we do not think there is a compelling reason for the FOMC to take action in September to raise interest rates. We cannot rule out a hike next week, but we think the likelihood is low.

Q3 GDP tracking update: Core retail sales came in well below our expectations and the prior month was revised down, both negative for growth in Q3. Moreover, the industrial production report August showed a sharp slowdown in industrial production, likely reflecting weaker electricity demand by consumers. However, the relevant components from the PPI to deflate inventories came in a bit weaker than we had assumed, a positive for real GDP accounting. On balance, we lowered our Q3 GDP tracking estimate by 0.3pp to 2.1% from 2.4%.”