US Consumption Table outlook: Retail Sales bothered by drop in Consumer Sentiment?

Two key consumption indicators to evaluate state of US economy.
Severe drop in the UMich Consumer Sentiment in August could drag Retail Sales down.
USD could sell-off in case of another disappointment, with fears of US recession looming.

Jordi Martínez FXStreet

The US economy has been performing well for quite some time and it has been the consumption sector (accounting for around 70% of the full economy) its main driver. This trend has even been more severe in the last months, with most consumption-driven indicators still going up while business surveys and economic activity indicators stabilized or swung down.

This is why Friday's bunch of data is particularly important, as Retail Sales full report for August (12.30 GMT) and Michigan Consumer Sentiment Index preliminary survey for September (14 GMT) are set to be released, the last big bunch of data ahead of next week's Federal Reserve meeting.

More: US Michigan Consumer Sentiment Preview: Who's got trouble?

Hard data versus soft data in the US Consumption Table

The US Consumption Table shows the different stance between the two key indicators being released on Friday. The soft data, lead by the University of Michigan Consumer Sentiment Index, shifted down in August with a dismal 89.80 reading, a drop of nearly to ten points from the previous July survey, abandoning the upward trend it had been following for years.

That disappointment swung the trend indicator from "Up" to "Neutral", but another print in a similar sub-90 range could quickly turn the trend down. The preliminary September reading is expected to pick a bit of steam at 90.9, but another worse-than-expected reading would add pessimism and increase the fear of a recession in the US economy.

Meanwhile, the Retail Sales reports have been trending the right way for months, with all three key figures (headline, ex-Autos and the most-relevant Control Group) surging from around a 0.30% average in the last ten releases to a 0.5%-0.75% range in the last three. After the dismal August release in the UMich Consumer Sentiment survey, markets will be closely following the Retail Sales report for the same month, to see if consumer pessimism is already translating into the real economy.

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Expectations are already set for a modest reading (0.3% for Control Group, 0.2% for headline number), but things could That should weigh meaningfully in the US Dollar, which could trigger a sell-off on a worse-than-expected number.

More: US Retail Sales Preview: Consumer confidence equals sales

Consumer Behavior	Impact	Last	Trend	Last 3	Last 5	Last 10
Retail Sales Control Group	3	1.00%	Up	0.73%	0.64%	0.36%
Retail Sales MoM	2	0.70%	Up	0.53%	0.60%	0.28%
Retail Sales ex Autos MoM	2	1.00%	Up	0.63%	0.64%	0.28%
Personal Spending	2	0.60%	Neutral	0.43%	0.50%	0.32%
Core PCE QoQ	2	1.70%	Neutral	1.57%	1.68%	1.68%
PCE QoQ	2	2.30%	Down	1.43%	1.58%	1.73%
Consumer Credit Change	1	$23.29B	Neutral	$18.33B	$16.55B	$17.94B
Redbook Index YoY	1	6.40%	Up	6.20%	5.58%	5.33%
Redbook Index MoM	1	-0.40%	Neutral	-0.93%	-1.30%	-0.45%
Total Vehicle Sales	1	16.90M	Neutral	17.00M	16.94M	17.05M

Consumer Confidence	Impact	Last	Trend	Last 3	Last 5	Last 10
UMich Consumer Sentiment Index	3	89.80	Neutral	95.47	96.72	96.28
IBD/TIPP Economic Optimism	1	50.80	Neutral	54.17	54.86	53.94

Housing-related Consumption	Impact	Last	Trend	Last 3	Last 5	Last 10
Existing Home Sales MoM	2	5.42M	Up	5.34M	5.29M	5.24M
Existing Home Sales Change MoM	1	2.50%	Up	1.10%	-0.40%	0.55%
New Home Sales MoM	2	0.635M	Neutral	0.636M	0.654M	0.637M
New Home Sales Change MoM	1	-12.80%	Down	-4.53%	-3.20%	-0.63%
Housing Starts MoM	2	1.191M	Neutral	1.238M	1.217M	1.204M
Housing Starts Change	1	-4.00%	Down	-1.93%	-0.08%	0.34%
NAHB Housing Market Index	1	66.00	Up	65.00	64.80	62.20
MBA Mortgage Applications	1	2.00%	Neutral	-2.43%	2.70%	1.20%

Inflation-related Consumption	Impact	Last	Trend	Last 3	Last 5	Last 10
Core PCE - Price Index YoY	2	1.60%	Neutral	1.60%	1.60%	1.71%
Core PCE - Price Index MoM	2	0.20%	Neutral	0.20%	0.16%	0.14%
PCE - Price Index YoY	1	1.40%	Down	1.43%	1.46%	1.55%
PCE - Price Index MoM	1	0.20%	Neutral	0.17%	0.20%	0.14%
Personal Income MoM	2	0.10%	Neutral	0.33%	0.32%	0.34%

It's also interesting to take a look at other satellite consumption-related indicators to look at hints for where US consumers pockets and mindsets are at the moment. Last Monday, Consumer Credit Change, a lagging indicator, for July printed a bigger-than-expected number, which could mean that spending trend is about to continue. The trend on that indicator is still neutral but it's picking up some steam in the last months.

In the housing market, New Home Sales and Housing Starts relative numbers are declining, which correlates well with the lack of investment and pessimism in the business sector, but Existing Home Sales are on the way up, which shows that demand in the housing market is still strong.

On the Personal Spending and Personal Consumption Expenditures front, the trend indicators are "Neutral", although spending has been gaining some steam in the last five releases.

Conclusion

Consumer confidence plunged in August, increasing the fears for a recession in the United States, as the economy has been supported by its dominant consumption sector. August Retail Sales report numbers will be key to understand if that pessimism was justified.

Author

Jordi Martínez

FXStreet

Jordi Martínez is the Editor in Chief at FXStreet, leading editorial operations at the company, before being promoted to the role in 2023, he worked in several editorial positions at FXStreet, including roles as Senior

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