- 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.
| Consumer Behavior | Impact | Last | Trend | Last 3 | Last 5 | Last 10 |
|---|---|---|---|---|---|---|
| Retail Sales Control Group | 3 | 0.70% | Up | 0.40% | 0.40% | 0.31% |
| Retail Sales MoM | 2 | 0.40% | Up | 0.23% | 0.42% | 0.22% |
| Retail Sales ex Autos MoM | 2 | 0.40% | Up | 0.33% | 0.36% | 0.17% |
| Personal Spending | 2 | 0.30% | Neutral | 0.33% | 0.40% | 0.30% |
| Core PCE QoQ | 2 | 1.80% | Neutral | 1.60% | 1.70% | 1.69% |
| PCE QoQ | 2 | 2.30% | Down | 1.43% | 1.58% | 1.73% |
| Consumer Confidence | Impact | Last | Trend | Last 3 | Last 5 | Last 10 |
|---|---|---|---|---|---|---|
| UMich Consumer Sentiment Index | 3 | 98.40 | Up | 98.87 | 98.44 | 97.16 |
| Housing-related Consumption | Impact | Last | Trend | Last 3 | Last 5 | Last 10 |
|---|---|---|---|---|---|---|
| Existing Home Sales MoM | 2 | 5.27M | Neutral | 5.27M | 5.30M | 5.21M |
| New Home Sales MoM | 2 | 0.646M | Neutral | 0.648M | 0.661M | 0.629M |
| Housing Starts MoM | 2 | 1.253M | Up | 1.252M | 1.211M | 1.205M |
| Inflation-related Consumption | Impact | Last | Trend | Last 3 | Last 5 | Last 10 |
|---|---|---|---|---|---|---|
| Core PCE - Price Index YoY | 2 | 1.60% | Down | 1.60% | 1.62% | 1.75% |
| Core PCE - Price Index MoM | 2 | 0.20% | Up | 0.20% | 0.18% | 0.14% |
| Personal Income MoM | 2 | 0.40% | Neutral | 0.47% | 0.34% | 0.35% |
As the table below shows, most indicators are pointing to the upside. As mentioned earlier, the previous report trends up. Another critical indicator is the forward-looking Consumer Sentiment Index by the University of Michigan, which is also advancing. Rising housing starts – which trigger the consumption of furniture and other household products – add to the positive picture.
Several indicators are mixed. They include personal spending and also sales of new and existing homes. Similar to housing starts, people tend to increase buying when they move – and these figures are stagnant. On the downside, some of the inflation indicators are trending lower – showing that a rise in consumption fails to ignite broad price pressures.
Nevertheless, FXStreet's Consumption Trends provide more hope than despair – signaling a higher chance of an upside surprise, leading to a risk-on reaction as described earlier.
Conclusion
The US retail sales report for July is critical for markets that fear a recession. Expectations are standing at a slower increase than in June, and recent trends are pointing to a higher chance of an upside surprise than a downside one. That would boost the dollar against most peers – but probably not vis a vis commodity currencies.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD consolidates recovery above 1.0650
EUR/USD extended the recovery from intraday monthly lows to the 1.0670 zone. It is holding firm above 1.0650 after the US Dollar lost momentum during the Asian session, primarily due to a retreat in US yields.
GBP/USD trims losses and rises to 1.2300
Boosted by a weaker US Dollar, the GBP/USD rebounded from six-month lows near 1.2230 and rose to the 1.2300 area. However, the Pound remains among the worst performers following the surprise dovish stance from the Bank of England.
Gold trims weekly gains, trades around $1,920 Premium
XAU/USD extended its weekly decline to $1,913.91 as the US Dollar kept marching higher following the Federal Reserve (Fed) decision to keep rates unchanged, but remark rates will remain higher for longer. Also, the Fed left the door open for one more rate hike this year. Chair Jerome Powell said the focus is on a soft landing, suggesting they are still struggling to avoid a recession.
Tether increased its secured loans in Q2 despite commitment to reduce lending
Tether Holdings has resumed the lending of its stablecoins in the form of secured loans to clients after announcing that it is set to wind down this practice less than a year ago.
Fed Dot Plot puts more pressure on DJIA
The Dow Jones Industrial Average (DJIA) has pulled back 0.51% so far this week, losing most of the ground after the Federal Reserve press conference on Wednesday. The US central bank once again paused interest rates but raised the specter of another hike before next year.