The trend of softening economic data out of the US has continued with retail sales tumbling more than expected in March.
Headline retail sales fell 1%, below the consensus of a 0.4% drop. Sales excluding autos dropped 0.8%, below the consensus of 0.3%, and the retail control measure fell by 0.3%, in line with expectations.
Earlier this week, the Producer Price Index (PPI) delivered a downside surprise with annual prices rising 5% in March, marking the smallest 12-month increase since the period ending May 2021. There are also signs of weakness in the labor market, with initial unemployment claims this week coming in above the consensus expectation.
Ryan Brandham, Validus Risk Management head of global capital markets, highlighted that this data continued the recent market theme of softening US data.
Commenting on Friday's retail sales data, Brandham said: “Excluding autos, gas and the control group, the numbers were stronger than expected, which may cloud the market reaction and potential positioning squaring into the weekend by market participants.”
Earlier strength just a fluke, analyst says
Pantheon Macroeconomics senior US economist Kieran Clancy said that the bigger picture is that the March retail sales numbers confirm that the apparent strength at the start of the year was nothing more than a weather-driven fluke, amplified by seasonal adjustment problems and the one-time uplift to social security payments.
“January and February saw 267 fewer heating degree days than normal, the second-lowest since 2000, temporarily boosting sales above its softening trend since the summer,” he said. “In March, however, the weather was more or less in line with historical norms, causing sales to revert towards the slowing pre-January trend.”
He noted that the only real surprise in this report was the 0.1% increase in food service sales, which he said stands in stark contrast to the nosedive implied by the data on credit card transactions at restaurants.
“That suggests our forecast for services consumption in 1Q is a little too low, but we remain confident that the January surge in food service sales will continue to be unwound in the months ahead, as tighter credit conditions and increased consumer caution bites,” he said.
Looking ahead, Clancy said he expects an outright decline in consumption in the second quarter, in part due to the negative carry-over from the small drop in February and the large drop in March.
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