US: Not looking good for retail sales - Scotiabank

The research team at Scotiabank, explains that it’s not looking good for retail sales when the March tally lands today.

Key Quotes

“Auto sales including parts carry about a 21% weight in total retail sales and new car dealers alone equal about 15½% of retail sales and so the unexpected 5.4% m/m seasonally adjusted plunge in new vehicle sales to their lowest reading since February 2015 will weigh on headline retail sales probably to the tune of about three-quarters of a percentage point on its own.”

“Since gasoline prices were little changed during the month (up by <1% m/m) and gasoline stations carry about a 7½% weight in total retail sales, there will be little assist from gas price effects. We won’t know CPI until the day of the retail sales release and so it’s difficult to incorporate expectations for price effects beyond just auto and gas prices, but what we know about vehicle sales and gas prices informs a fair portion of the forecast risk. That said, it’s the retail sales control group that matters to tracking consumption growth off of retail sales and that subtracts autos and gas stations along with building material and gardening equipment/supplies and also office supply and stationery stores and other minor categories. In order for consumer spending to be spared a negative print for March, it’s therefore necessary for there to have been a large pick-up in sales excluding these categories.”

“This matters enormously to Q1 growth and whether it is shedding a falsely weak signal. Based on data covering the first two thirds of the quarter, inflation-adjusted consumer spending is tracking just 0.3% q/q growth at a seasonally adjusted and annualized pace. If consumer spending is weak again in March then the real possibility is that consumer spending retreated a touch in Q1 as a whole.”

“Of interest is that it’s usually not consumption that disappoints in Q1 as evidenced by chart 2. GDP growth has disappointed in Q1 relative to the rest of the year, but consumer spending growth doesn’t explain this phenomenon. Thus, the large majority of the reasons why Q1 GDP growth has steadily underperformed the rest of the year on average (but not every year) have nothing to do with consumer spending. It’s not clear why renewed weakness in consumption exists, but very weak growth in real wages may be an offset to strong confidence readings.”