Retail Sales dropped 1% in March in the US, a larger-than-expected contraction. Despite those numbers, analysts at CIBC still see the Federal Reserve raising rates in May, for the last time.
Key quotes:
“US retail sales fell sharply in March as consumers became more cautious, adding to other recent data releases that have signaled a deterioration in activity.”
“The Fed is looking for definitive signs of a cooling in activity and this print is a step in the right direction, but with sales volumes in the control group still 5.8% above their pre-pandemic trend level, this won’t prevent a 25bp hike at the May FOMC.”
“This data adds to signs of a deterioration in activity that will likely intensify in the second quarter, but the progress in cooling activity won’t be enough to prevent a final 25bp Fed hike in May.”
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According to recently released data by the US Census Bureau, retail sales fell sharply in the US in December 2019. This marked the biggest drop in retail sales in nine years and the second-largest decline since the Great Recession in 2009. CIBC economist Peter Buchanan explained that the decrease in spending was due to a combination of factors, including a slowdown in consumer confidence and changes in the labor market.
As the US neared the holiday season, consumer spending levels dropped as shoppers became more cautious with their wallets. With wages stagnating and unemployment rising, many American households reduced their spending on consumer goods and services. The decrease in consumer spending was also compounded by subdued consumer confidence, which fell to its lowest level since 2016.
The ill effects of the consumer spending drop were most prominent in the food and beverage store sector, which saw retail sales decline 7.3% in December. The clothing and clothing accessories sector also suffered a large decline of 8.7%, the largest since 2009. The department store sector experienced one of the largest drops in sales, with a decline of 10.1%.
Retailers were faced with insufficient consumer spending to offset the costs of the holiday season and many were forced to resort to discounts and other promotional activities. While some spending categories saw an uptick in December, such as furniture and e-commerce stores, overall sales figures declined.
The weakened consumer spending figures signaled that 2019 was a challenging year for many downstream businesses. With retail sales tepid, the US economy is likely to face further volatility going into 2020.
The data from CIBC shows that consumer sentiment and spending have been volatile in the US, and this will likely continue in the coming months. The burden is on businesses to employ strategies that protect them from a further drop in consumer spending.
