Monday, July 15, 2013

Stripping down the US retail sales

June US retail sales came in nearly 6% above last year's figure. Yet economists and market participants were disappointed. In fact treasuries rallied in response to the number - a sign of a weak economic report.

10-year note futures (source:

The report was disappointing for three reasons.

1. Given how strong the US consumer confidence indicators have been recently, economists expected a month over month gain of 0.8%. The actual number came in at half that amount. Consumer confidence no longer has the same impact (the same weight in economists' models) on spending that it used to have. Happy consumers no longer always turn into big spenders.

2. Auto sales have been quite good recently, which is reflected in the headline sales figure. If one strips out autos however, sales were actually flat compared to the previous month. In fact sales ex-autos have been lagging the headline number for a few months now.

3. Finally if one strips out both autos and gasoline expenditures, sales actually declined for the month.

The consumer represents over 70% of US GDP (see discussion), which is why treasuries rallied after the release of the report. After all, GDP growth can not be sustained by autos and gasoline sales alone.
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