US Retail Sales Disaster

After months of proclamations from the sell-side research teams that the retail spending resurgence was just around the corner, today’s data confirms the consumer is still not ready to make a comeback. Contrary to expectations that increased purchasing power and rising disposable income would spur lending, the exact opposite has occurred with the drop in oil prices; spending has fallen and the savings rate has climbed to the highest level in years. Retail sales released just minutes ago showed that on expectations of a 0.50% month over month gain in core retail sales, the actual figure printed at -0.10% with the prior number revised lower from -0.90% to -1.10%. Without taking gas and automobile sales into the equation, the number was even worse, printing at -0.20%, below forecasts of 0.30% expansion. The regular number including all factors fell -0.60% month over month, making this the worst streak since the collapse of Lehman Brothers, marking 3-straight months of contraction.



The main reason for the latest drop was February’s collapse in auto-sales. Part of this can be attributed to the crackdown on lending standards after the latest explosion in subprime auto-lending which contributed to the latest credit bubble. The only bright spot in the latest retail figures was the expansion in online sales which grew 2.20% month over month compared to the -2.30% drop in building materials. Although sell-side institutions revised quarter one GDP estimates lower earlier in the week, these latest figures are likely to contribute to further downgrades to estimates as tepid consumer spending and nonexistent business inventory growth foreshadow further weakness in the pipeline for the American economy. The dollar has been strong in anticipation of higher interest rates, but this may actually prove a drag on the economy as growth remains elusive. The dollar is rebounding after pulling back from highs with momentum driven higher by losses in GBPUSD.