USA: Consumers Finally Went Shopping

Overview: The November retail sales posted a decline of 1.8% m/m and 1.6% excluding autos, which was slightly better than expected; and much of the weakness was driven by a 14.7% decline in gasoline sold at the pump. The biggest surprise is found in the details of the report showing that core sales (excluding gas, autos and building materials) rose 0.5% on the month.

Heavy discounts in the Thanksgiving holiday combined with a super boost to real incomes from lower energy prices thus finally worked to encourage US consumers to go shopping.

Details: The contraction in retail spending reflected in the headline number was largely confined to weakness in gasoline sales (-14.7% m/m), Building materials (-1.2% m/m) and Autos (-2.8%). Stripping out these components, core retails sales increased 0.5% m/m with sales of Electronics, Sporting goods, General merchandise and sales at department stores all showing decent increases.

The data implies that real personal spending in November will increase by around of 0.6% m/m. Revisions to October data indicate that the estimate for real personal spending will be lowered by 0.07pp in that month. This puts real Q4 spending on track for delivering a positive surprise to consensus downbeat expectations, with a decline of around 2.2% q/q AR.

Assessment & Outlook: There is no doubt that the three month trend in core retail sales still looks awful, hitting a cycle low of -5.6% annualised in November. Heading into Q1, several drivers of consumer spending will remain negative. This includes income growth, unemployment rates, and wealth and credit effects. Nevertheless, we are cautiously optimistic as today's data suggests that the major boost to real incomes from the very sharp decline in energy prices is finally having some effect. We will need more data to conclude that Q3 posted the maximum negative growth rate in private consumption, but today's data does increase the probability of a positive surprise.

Danske Bank
http://www.danskebank.com/danskeresearch

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