Preview of today's US retail sales figures

The US retail sales figures for March provide what is probably the key data interest today as we close the week. A downbeat set of numbers is expected, the monthly headline figure generally forecast to print at -0.4%, matching the reading for February. This further contraction is largely predicated on the on-going slowing demand being seen for goods (the Redbook Index has shown a downwards trend in goods spending since August last year), but also on cooling demand for services, evidence for the latter being provided by high-frequency data such as credit card sales, which are showing that the boost to food services spending seen in January and February was largely unwound last month.

Indeed, it is this credit card data that is suggesting today’s retail sales numbers may actually come in worse than expected. As we have alluded to previously, much of the apparent strength seen in consumption so far this year has probably been attributable to the unseasonably warm weather seen over large parts of the US in January and February. Weather conditions do not normally have much of impact when determining whether or not consumers go shopping or out for dinner etc. But it is a key factor if the roads are covered in snow. The lack of snow cover seen this winter in parts of the US, particularly in the North East, almost certainly encouraged people to go out and spend money that they normally would not have spent, and most of this money was likely spent on services. With the March weather more or less in line with historical norms, that spending boost will have now disappeared and may even be reflected in lower spending in March as consumers look to recoup some of the heavier outlays seen in January and February.

Also signalling a potential slowdown in spending is the decline in consumer sentiment seen in March, which fell for the first time since last November and is likely reflecting the impacts the rising cost of living and tightening financial market conditions are having on household budgets. At the same time we are starting to see a softening in the labour market. This week’s Jobless Claims numbers provided further clarification that claims are now trending upwards, the reading chiming with the Challenger job survey which showed announced layoffs over Q1 were at their highest level since 2020. And this is coming at a time when wages growth is finally starting to slow: the latest BLS employment report showed wages growing at an annualised rate of 3.8% in Q1, the smallest increase since Q4 2019.

Overall, barring any unexpected surprises, today’s figures look set to add to the mounting body of evidence that economic activity in the US is materially slowing, and this is coming before the impact of the credit crunch caused by the US banking crisis has been fully felt. The CPI and PPI numbers already released this week were probably not sufficient in themselves to prevent the Fed from raising interest rates again next month by 25bps; but it is looking increasingly likely that May will deliver the last interest rate rise of the current tightening cycle.