US Retail Sales Preview: Will the American shopper lift the mood and the dollar? 3 scenarios
|- US retail sales are expected to continue rising in July.
- Amid fears of a recession, the bright side of the economy may shine.
- FXstreet´s Consumption trend data point to an upside surprise.
For many visitors to the US, it is the land of shopping malls, outlets, and the best online deals. Consumption consists of around two-thirds of the US economy, making every retail sales release a critical market mover.
And the upcoming release for July is of even higher importance. Fears of a forthcoming recession have gripped markets as the yield curve has inverted – a previous hint of a downturn – and as the US-Sino trade wars remain far from being resolved.
Household expenditures have also played a substantial role in America's outperformance in the second quarter. Personal consumption rose by 4.3% annualized, around double the growth rate of 2.1%. An annualized growth rate of 2.1% is comparable to 0.5% quarterly – better than Japan at 0.4% – and far better than the UK and Germany, which saw output squeeze.
And now, we will know how the US shopper performed in July – the first report for the third quarter.
Expectations stand at further gains, albeit weaker than the robust rises seen in June. Headline sales carry expectations for an increase of 0.3% against 0.4% last time. Sales excluding fuel are forecast to repeat the 0.4% increase. And the all-important control group is predicted to advance by 0.3% after a leap of 0.7% beforehand.
Scenarios for the outcome and the dollar
1) As expected – dollar modestly higher: Comparing to historical trends, these expectations are balanced. If expectations are met, the US dollar may edge up as it will have confirmed that the consumer is keeping the economy afloat. Changes will likely be limited in such an "as expected" scenario.
2) Weak data – risk-off reaction: In case sales disappoint by remaining stagnant – with some figures showing modest growth and others, marginal declines – concerns may grip markets. In this scenario, the dollar may drop against the safe-haven yen and the franc but rise against commodity currencies. It may wobble against the euro and the pound – which have troubles of their own.
3) Beat – risk-on reaction: If American shoppers maintained June's pace in July and bought more than expected, markets will cheer, and the dollar will have room to rise – especially against safe-haven currencies and also against the euro and the pound. However, it may lose ground to the commodity currencies such as the Australian and Canadian dollars which may advance alongside stocks.
To what direction may the figures surprise? We will use FXStreet's Consumer Trends data for that.
Consumption trends point to an upside surprise
Here are the figures, with an explanation below.
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