US: January retail sales soften – Nomura

US retail sales declined 0.3% m-o-m in January, below expectations (Nomura: +0.4%, Consensus: +0.2%), showing broad-based softness among components and core (“control”) retail sales disappointed to the downside while revisions were largely negative, explains the research team at Nomura.

Key Quotes

“Core (“control”) retail sales remained flat in January, below expectations (Nomura: +0.5%, Consensus: +0.4%), after falling a downwardly revised 0.2% m-o-m (previously reported as +0.3%). The weakness appears broad-based. Furniture sales declined 0.4% m-o-m, health & personal care product sales dropped 1.2%, and hobby & sporting goods sales declined 0.8%. Sales by non-store retailers, after accelerating sharply in November and increasing modestly in December, fell marginally in January, remaining flat on a rounded basis. On the bright side, department store sales picked up, increasing 0.8% mo-m, the highest reading since July 2017 for a segment of the retail sector that remains under pressure from online competition.”

“Outside core components, sales at autos and auto parts dealerships fell 1.3%, in line with our expectations and consistent with softening auto sales in January. Sales of building materials (which tend to be volatile) fell 2.4%, possibly reflecting the winding down of rebuilding activity following the active 2017 hurricane season that added some support to building material sales last fall. Elsewhere, sales at gasoline stations rose 1.6%, reflecting a steady climb in retail gasoline prices during January.”

“Looking ahead, we continue to expect a modest contribution to growth this year from consumer spending despite relatively soft January retail sales. Job gains and income growth have remained firm and consumer optimism remains near historical highs. Moreover, the recent tax cuts could boost consumer spending somewhat as new 2018 federal withholding tax rates will be applied no later than 15 February.”

“However, a delayed start of the official 2018 tax season could result in delayed tax refunds, increasing uncertainty on our near-term PCE outlook. The IRS reported that it began accepting tax returns on 29 January, six days later than in 2017. Given that most refunds could take up to 21 days, the agency reported that it “reminded taxpayers claiming certain tax credits that refunds won’t be available before late February.” Such delays could shift consumer spending from February to March and possibly in early Q2, posing some downside risk to PCE growth in Q1.”