US spending remains robust despite the slide in sentiment
Lead — US consumer spending displays surprising resilience despite prevailing pessimism, underscoring a K-shaped recovery. Per the full note , retail sales unexpectedly rose by 1.2% MoM in August, significantly exceeding expectations, driven largely by a rebound in internet sales post-Amazon Prime Day. This activity suggests that higher-income households are maintaining their spending patterns, while middle and lower-income brackets face mounting financial pressures. The mixed signals regarding sentiment and spending could influence future monetary policy stances from the Federal Reserve as they weigh inflation concerns against growth signals.
What the desk is arguing
The desk interprets the recent rebound in US retail sales as a critical indicator of economic resilience, suggesting consumers are prioritizing spending over savings despite feeling pessimistic. According to the research, August retail sales rose robustly, outperforming market expectations by over 50% with a month-on-month increase of 1.2% compared to the anticipated 0.8% rise.
Notably, core retail activity, excluding volatile sectors, increased by 1.4%, while internet sales surged by 2.6%. This suggests that despite cuts in savings rates, households are maintaining expenditure levels, with the implications for the broader economy appearing positive for now.
Where it sits in our coverage
Our consensus target for the relevant currency pair is set at 1.075, with a range spanning from 1.04 to 1.12. Several firms align with this outlook: - jpmorgan: 1.10 (Mar26) - goldmansachs: 1.08 (Mar26) - hsbc: 1.07 (Mar26)
This view aligns slightly below the median of our cross-firm consensus, indicating a generally cautious yet optimistic sentiment on the USD's relative strength in the near term.
How other firms see it
Firms such as jpmorgan and goldmansachs share a bullish outlook, reflecting confidence in continued consumer spending. Conversely, bofa takes a more bearish stance, suggesting potential weaknesses in consumer demand moving forward due to inflationary pressures.
Monitor activity in consumer-oriented sectors and USD/JPY for correlations with spending data and central bank responses; the interplay here will be crucial in shaping market sentiment in upcoming trading sessions.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Retail sales rebounded by 1.2% MoM in August, exceeding expectations and indicating consumer resilience.
- 02Higher-income households continue robust spending patterns amidst a bleak overall consumer sentiment.
- 03A K-shaped recovery narrative persists, with significant financial pressure on middle and lower-income brackets.
- 04The surge in spending, particularly in internet sales, may influence future Federal Reserve policy decisions.
Market implications
Focus on the 1.075 level, where continued strength in retail sales could bolster the USD against peers. Positioning shifts may be seen in consumer-driven stocks and broader equity markets, especially ahead of potential Fed meetings reflecting inflation and growth concerns.
Risks to this view
A significant reversal could occur if upcoming economic indicators signal a sharp decline in consumer confidence, or if inflation metrics lead the Fed to pivot towards a more aggressive tightening stance, potentially stifling spending.
Older quick take Quick take Published 13:53 United States US spending remains robust despite the slide in sentiment US retail sales rebounded strongly in August after an earlier-than-usual Amazon Prime Day disrupted the usual June and July spending patterns. The key message is that while households remain unusually pessimistic, they are, for now, prepared to carry on spending and are willing to run down their savings to maintain lifestyles Despite an earlier-than-usual Amazon Prime Day, retail sales rebounded strongly in August on internet sales Spending surges in August, led by internet stores US retail sales rose 1.2% month-on-month in August versus expectations of a 0.8% MoM gain. The control group, which excludes volatile items such as gasoline, restaurants, building materials and autos, rose 1.4% MoM – much better than the 0.5% consensus forecast.
Internet sales bounced back, rising 2.6% MoM – Amazon's Prime Day was earlier than usual this year, which boosted June sales at the expense of July (-1.7% MoM) and we saw a subsequent recovery in August. Eating & drinking out posted a decent 1.2% increase with miscellaneous stores rising 1.9%, electronics rose 1.6% with gasoline station sales rising 3.1% on higher prices – remember this report is based on nominal dollar sales figures, not sales volumes. On the weaker side, building material stores experienced a 0.2% drop, grocery stores saw sales growth of only 0.4% while clothing rose 0.7%.
Retail sales values (Feb 2020 = 100) Source: Macrobond, ING "> Source: Macrobond, ING Consumers keep spending despite growing financial pressure In general, it indicates robust consumer activity despite very weak consumer confidence readings and reinforces the K-shaped consumer narrative whereby high-income households, buoyed by big wealth gains over the past five years, are spending strongly. Meanwhile, middle and lower income households are increasingly being squeezed, with the University of Michigan sentiment measure suggesting households are the most anxious they have been for 50 years! The fundamental drivers of spending for most households remain under pressure – an 18-month flat lining in real household disposable incomes is the biggest issue – which means households are saving less of their income in order to maintain lifestyles.
Another sign of stress is the rise in credit card and auto loan delinquencies. Real household disposable income (chained 2018 $bn) 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. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
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