US Retail Sales Preview: Strong currents ahead of holiday shopping season

 US retail sales for October, one of the premier US economic statistics and a potential market mover, will be released on Thursday November 15th at13:30 GMT. 8:30 am EST. 

Prediction

Retail sales in October are expected to recover to 0.5% after two stagnant months of 0.1% growth in August and September.  The ex-autos sales figure is also predicted to regain 0.5% following a loss of 0.1% in September and a 0.2% increase in August. The retail sales control core group which excludes more volatile components as food service, automobile dealers, building material and gasoline, should remain on an even keel with September’s 0.5% gain. A 0.4% increase is anticipated for October.  This core group is used by the Bureau of Economic Analysis in the personal consumption expenditure (PCE) component of gross domestic product and is taken as an indicator of the consumer sector.  Domestic consumption is about 70% of US economic activity. 

Coincident Factors

Despite two weak months in the headline sales number the coincident factors remains strong. Consumer confidence in the Michigan survey dipped to 96.2 in August but returned to 100.1 in September, 98.6 in October and 98.3 in the preliminary November measure. The three month moving average in November was the third highest score in in 18 years and the 12 month moving average is the strongest sustained consumer sentiment score since June 2001. 

Wages have also hit a high note recently. Average hourly earnings were up 3.1 % in October the best annual improvement since the first quarter of 2009. Unemployment is at 3.7% a level not reached since 1970.  Consumers have many reasons to be their most optimistic in a decade as the retail sector's all important holiday shopping season begins. 

Business confidence in the manufacturing sector, a source of more than 400,000 new jobs in the past two years, has fallen from its near record high in August but at 57.7 for October it remains higher than the vast majority of reading of the past 40 years. Likewise manufacturing employment exhibits a strongly expansive character.  

The excellent labor market and wage growth and the general economic optimism is expected to show itself in rising receipts from on-line shopping and in stores across the country. 

Market Impact

A healthy US economy and by definition that means a strong consumer sector has been one of the enabling factor behind the Federal Reserve's interest rate policy.  The projection materials issued at the September meeting anticipate a final 25 basis point increase this year in December and three more in 2019.  This policy will find necessary reinforcement in a steadily growing retail sales figure. 

Likewise the dollar has been supported by the Fed's tightening policy. A strong sales figure in October, particularly as it leads into the holiday shopping season in November and December will provide the US currency with robust backing into the fourth quarter.  A weak number will bring with it questions about the sustainability of the US expansion.