US retail sales point to a second-quarter consumer rebound
The desk believes that the recent uptick in US retail sales signifies a robust consumer rebound in the second quarter, despite underlying weak sentiment indicators. Per the full note from ING, the retail sales data showed a month-on-month increase of 0.2%, with core metrics rising 0.5%, suggesting a recovery bolstered by strong online sales and autos. The overall picture, while mixed, contrasts the disappointing results of Q1 and aligns with expectations for improved economic activity. Upcoming reports will be critical in confirming this trend.
What the desk is arguing
The desk posits that the latest retail sales figures indicate a second-quarter rebound in consumer spending, a stark turnaround from the first quarter's lackluster performance. According to ING's analysis, retail sales rose 0.2% month-on-month, with a notable 0.5% rise in the control group, which is more indicative of broader spending trends.
Key contributors to this rebound include significant growth in internet sales, which surged by 1.9% month-on-month, likely fueled by events such as Amazon Prime Day. The data indicates a year-on-year growth rate of 18% for internet sales, emphasizing a shift in consumer habits as physical stores struggle to maintain footing.
Where it sits in our coverage
Our consensus target for USD/CAD is set at 1.075, with a range of 1.04 to 1.12. Notable targets from other firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, indicating endorsement of a moderate bullish stance, while bofa presents a more cautious outlook, suggesting divergence among analysts on the potential for further dollar weakness.
How other firms see it
Generally, firms like jpmorgan and citi reflect optimism consistent with consumer recovery narratives, while bofa expresses caution regarding potential pitfalls in consumer confidence.
In light of retail dynamics, the USD/CAD trajectory will likely be influenced by remaining data on consumer sentiment and spending habits as they interact with Federal Reserve policies, particularly in anticipation of any shifts in interest rate trajectories.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01US retail sales reflect a recovery with a 0.2% month-on-month increase.
- 02Internet sales significantly outperform physical stores, driven by events like Amazon Prime Day.
- 03The consumer sentiment remains weak, cautioning against overexuberance in interpreting retail gains.
- 04Consensus indicates a range of targets among firms, with divergence in outlook.
Market implications
Traders should monitor the upcoming US CPI data as it could influence market sentiments further. A strong retail sales trend could push USD/CAD towards the higher end of our consensus target around 1.075.
Risks to this view
If upcoming economic data reveals a downturn in consumer confidence or spending, it could undermine the prevailing bullish sentiment, forcing a reevaluation of the current targets. Additionally, unexpected geopolitical events might create market volatility that could invalidate this call.
Older quick take Quick take Published 14:09 United States US retail sales point to a second-quarter consumer rebound After a disappointing first quarter for consumer spending, retail sales data suggests we saw a rebound in the second quarter despite weak sentiment readings. Internet sales continue to outperform, with physical stores losing ever greater market share Retail sales suggest a second-quarter rebound with internet sales outperforming physical stores Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download James Knightley Chief International Economist, US Retail sales boosted by strong autos and internet sales June US retail sales matched market expectations, rising 0.2% month-on-month at the headline level with the control group, which excludes volatile items (gasoline, food service, autos, building materials), and better tracks broader consumer spending trends, rising 0.5% MoM. Remember these are dollar value figures and lower gasoline prices meant gasoline station sales fell 5.3% MoM.
Non-store (internet) sales continue to be the main source of growth, rising 1.9% MoM, likely boosted by Amazon Prime Day. In year-on-year terms, sales are up 18% for this component versus 8.4% YoY for total sales. Sporting goods also saw robust gains in June, rising 1.3% MoM, but that component also saw quite significant inflation within the CPI report.
Motor vehicle sales rose 1.9% and electronics rose 0.8%, but clothing (-0.3%), miscellaneous (-0.3%), grocery (-0.2%) and health/personal care (-0.8%) all saw weakness. The chart shows the relative performance of selected sectors since the pandemic and highlights how internet sales are so significantly outperforming physical stores in terms of sales values. US retail sales levels Source: Macrobond, ING "> Source: Macrobond, ING Retail sales set to continue underperforming broader spending trends The chart above indicates a fairly mixed picture, but the overall retail sales number appears consistent with 2Q GDP real consumer spending growth of a touch above 2%, which is a marked improvement on the 0.5% annualised rate from 1Q.
Remember that we have experienced a 12-month period where real household disposable incomes have flat-lined – a highly unusual situation. This has most impacted medium- and lower-income households, with the combination of weak nominal income and employment growth plus elevated inflation prints constricting spending power and leading to a decline in the household savings ratio. Higher income households have been under less financial pressure and have been boosted by significant post-pandemic wealth gains – Federal Reserve data suggests that the top 20% of households by income hold 70% of the household wealth.
These households tend to spend more of their income on services and experiences than middle- and lower-income households, who spend a greater proportion of their income on physical goods – as reflected within retail sales. The chart below shows that retail sales account for a declining trend overall of total consumer spending and suggests overall spending trends are likely to continue outperforming retail sales growth. Retail sales as a proportion of total consumer spending Source: Macrobond, ING "> Source: Macrobond, ING US Retail sales Consumer spending Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
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