US Retail Sales Show Contraction for First Time in Seven Months
- Both topline and Core Retail Sales negative
- Consumers for huge part of US economy
- Could signal further cracks
The US Retail Sales for month over month came out during the trading session on Wednesday and shocked the market. This is a crucial part of the US economy as 70% is driven by consumers. While there have been several other somewhat negative announcements coming out over the last couple of months, the one thing that most bullish traders could stand on is the idea that the consumer was still relatively strong. If that’s not going to be the case, this could be the beginning of something much bigger.
The Core Retail Sales (month over month) figure came out at -0.1%, as opposed to the expected 0.2%. Obviously, this was a shock to the market as it was the first time in seven months that this number was negative. Core retail sales include less volatile purchases, excluding such things as automobiles. The Retail Sales (month over month) figure came out at -0.3%, as opposed to the expected 0.3%. This is also very concerning, and it is the first time it has come out at a negative print since March.
We are in the midst of earnings season, and these numbers will more than likely be used as an excuse for slowing sales going forward. This could have a bit of a “knock-on effect” in the equity markets as well as bond markets.
Adding more confusion to the picture is the fact that the month of August was revised higher to include a 0.6% increase. So, while this number is rather concerning, the reality is that many traders will look at this as a potential “one-off”. This makes the Retail Sales figures for next month crucial because a second miss or, more importantly, a second negative number, could really start to send the stock market into a very negative place.
As many of the risk appetite markets such as the S&P 500 approach all-time highs, the question now becomes whether or not this will become an inflection point. There have been a lot of negative headlines recently, and people are beginning to wonder about things like the trade war. Because of the negativity out there, traders are starting to bet even more aggressively on an interest rate cut in October by the Federal Reserve.
Some of the biggest losers in the report were online shopping, sporting goods, hobby, and building materials. However, there were increases led by apparel, health and personal care, furniture, and home furnishings. Ultimately, electronics and appliance purchases were flat. The internal numbers in the report show a very mixed picture, so this could be the beginning of something bigger. Wall Street will certainly be paying close attention to Retail Sales next month.