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Market Wire
American Retail Sales Stay Frosty

Karl Schamotta March 14, 2018

American retail sales unexpectedly fell 0.1 percent in February, dropping for a third month as consumers cut spending on automobiles and other big-ticket items – suggesting that a slowdown in first-quarter economic growth could be in the offing. Markets had expected a 0.3 percent gain in the headline number.

Losses were widespread, with declines in seven of thirteen major retail categories, but the pain was most extreme at auto dealers, where sales fell 0.9 percent for the second month in a row as the autumn’s post-hurricane surge faded.

Historically, sales of big-ticket items tend to drop in February, suggesting that a 0.2 percent increase in sales excluding autos should capture attention – but this is also below market expectations that had been set near the 0.4 percent mark.

Core retail sales (excluding automobiles, building materials, food services and gasoline) grew by 0.1 percent after no change in the prior month – meaning that the consumer spending component of gross domestic product remains in positive territory for the year thus far. According to a forecast released by the National Retail Federation earlier this month, retail sales could rise between 3.8 and 4.4 percent by the end of 2018, with falling unemployment and rising wages combining to lift American consumption levels.

Currency market reaction has been minimal thus far, with the dollar is trading near a one-week low as turbulence in Washington keeps risk appetite suppressed. Yesterday’s dismissal of Secretary of State Tillerson have added to trade war fears triggered by last week’s departure of Gary Cohn – and news that the President plans to impose tariffs on Chinese imports are serving to confirm a protectionist tilt at the White House. Higher tariffs can impact exporters, but ultimately also represent a tax on US consumers – so

The Canadian dollar remains tightly rangebound, lacking the conviction to push lower as developments in oil markets continue to muddy the picture. With the Trump administration also increasingly likely to abrogate the Iran nuclear deal, oil prices are modestly higher – but could come under pressure later this morning when the Energy Information Administration releases its latest inventory data. With refinery demand down during seasonal maintenance, crude stockpiles are expected to rise almost 2.5 million barrels, while gasoline could fall 1.3 million and distillates 1.4 million.

Bottom Line: After yesterday’s slower inflation print, today’s surprisingly-anaemic retail sales report could weaken the argument for four rate hikes this year – but the seasonal nature of consumer spending should ensure that the market reaction remains restrained. Survey-based consumer sentiment indicators continue to point toward a rise in consumption, suggesting that numbers should improve as the world thaws into the spring months. We wouldn’t to contradict Game of Thrones too firmly, but winter isn’t coming – it’s going.

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