U.S. Economics – Retail Sales

Intro

Our expectations coming into the quarter were for consumer data to remain at levels that would contribute to the FOMC remaining on pause. Retail sales declined by -0.9% m/m in January, but underneath that seasonally adjusted Headline number the details were less worrisome. However, we will be looking for better prints in February and March, especially from the Retail Control Group series, which tends to track the direction of quarterly consumer spending data that feeds into GDP calculations.

Retail Sales

The Signals:

• • Retail Sales (Chart 1)
    • On a seasonally-adjusted basis the m/m pace of -0.9% was the largest decline since March 2023, and the worst January print since 2014.
      • However, the unadjusted m/m pace has come in negative every January since the series began in 1993, therefore its likely more important to note that this January was above last January.
      • This decline was also following an upwardly revised 0.7% m/m increase in December.
    • Another divergence to note is that the y/y pace for the seasonally-adjusted data slowed to 4.2% from 4.4%, but the unadjusted pace accelerated to 4.8% from 4.4%.
    • In nominal dollars, both iterations of retail sales remain above their respective 2015 to 2019 trends.
  • Retail Control Group (Chart 2)
    • The m/m growth rate for the Control Group declined by -0.8% in January, following a 0.9% increase in the prior month.
      • Similar to the Headline, the unadjusted number is always negative in January, but the Control Group’s pace was the lowest since 2022.
  • Consumer Spending ETF Signals (Chart 3)
    • • At yesterday’s close, three of the ETFs we track related to consumer spending were mixed on a six-month basis, with XLY outperforming SPY while XRT and XLP underperformed.
        • Outperformance for XLY has waned on a one-month basis, falling to -1.2%, while XLP has improved by 4.7%.
        • If retail sales growth is going to improve over the quarter, we would expect to see improvement in XLY and moderation in XLP.
        • In XRT terms, the price started to come down in mid-December but has not reached its prior low made on January 14^th, which would likely be a negative market signal for spending moving forward.

The Takeaway:

• The seasonality of retail sales should not be ignored, but we will have to see better numbers in February and March if Q1 is going to improve compared to the prior year.

Visuals:

(Chart 1)

(Chart 2)

(Chart 3)

Source: Macrobond

Market Trends:

Source: Macrobond

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.