A month ago, data regarding December Retail Sales gave investors a nasty surprise given that they registered a 1.8% reduction compared to consensus expectations of 0.1% growth. As the US economy’s entry into the new year was numbed by the government shutdown, the question which begs an answer relates to whether Retail Sales today are likely to come out worse than expected.
Data releases have not provided a favourable outlook to the US economy and, even though the Q4 GDP release came out better than predicted, this overall tendency towards a slowdown is expected to continue, as both the ECB’s and the OECD’s forecast revisions suggest. The US shutdown caused the number of people who have been employed part-time for economic reasons (i.e. while they would prefer to have been full-time employed), to increase by 1.5 million, thus effectively reducing their purchasing power. Under this scenario, private spending the US economy is likely to have been negatively affected by the increase in part-timers, and Retail Sales are likely to be the first indicator to register some of this reduction.
As the NFP release on Friday has shown, and as we mentioned prior to the release (twice), the US economy continues to struggle with the slowdown, as new payrolls amounted to only 20K during the month, despite the fact that wage inflation is growing and the unemployment rate remains low.
Higher inflation and lower job creation is exactly the picture of a slowdown that has been taking place in the US. The question now is whether consumer spending could be the next input to this picture.
Summing up, Retail Sales risk remains to the downside, driven by the US shutdown in January and the poor NFP data release on Friday.
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Dr Nektarios Michail
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