US Retail Sales Blunder

Market Trends - 14/04/2015

For the fourth straight month, US retail sales missed estimates, with the March figures printing at 0.90% versus expectations of a 1.00% gain. As usual, the simple explanation offered by economist and traders was to blame the weather, however, this excuse is rapidly losing its traction, especially with the onset of the warmer months. Moreover, this is the worst streak in retail sales figures since the collapse of Lehman Brothers, another sorry story for the state of the US economy. Even though consumption serves the backbone of the economy and any prospective recovery, spending in general has witnessed a fairly dramatic divergence since the last financial crisis. A deeper look at the latest spending data shows that aside from subprime automobile sales, spending among the lower 80% of the American populace has gradually shrunk over the last few years. This contrasts with the upper 20% which has increased spending in recent quarters, bucking the trend of the majority of the economy.

 

Instead of spending disposable income on new iPhones and iWatches, consumers are being forced to spend more on healthcare related expenditures thanks to Obamacare. While boosting GDP, it is not spurring gains in retail, highlighting the rather tenuous nature of US economic growth. Furthermore, this latest figure is likely to contribute to another revision lower in first quarter growth estimates raising the possibility that Q1 will be a kitchen sink quarter for bad macroeconomic data. Although US equity futures have continued to show momentum higher since the announcement, the kneejerk reaction was felt across currencies and commodities with the dollar reversing from earlier gains, weakening broadly against the Euro despite the record level of Euro shorts. As the Federal Reserve contemplates the interest rate environment and relevancy of higher rates, retail data does not necessarily spur confidence in the outlook. Blaming the weather might sound like a good excuse, but it does not necessarily indicate pent up demand for consumption, further exacerbating the FOMC’s rate quagmire.

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