Three days ago, on Tuesday, the U.S. Retail Sales data for October showed continued growth. Although the pace of growth declined, October was the sixth consecutive month of growth after the collapse in May.
On many fronts, this is more than good news. It shows the resilience of the U.S. consumer that kept spending during the health crisis.
Also, it shows the impact the monetary and fiscal policies had on households. While the savings rate increased due to the pandemic’s uncertainty, consumers did spend most of what they got from the government as a stimulus. Perhaps one explanation for the slower growth pace is that the consumer started spending the savings accumulated in the last six months.
What to Make of October U.S. Retail Sales
Every time the Retail Sales indicator is released, traders should split the attention in two different directions. One is the headline release. In October, the Retail Sales indicator showed an MoM increase of 0.3% when compared to the previous month. The actual was slightly below the expected 0.5% consensus and much below the previous 1.6%. When it comes to the headline data, what matters is the trend. As long as Retail Sales keep growing, the consumer has some reserves it can still use.
Another thing to consider is the Core Retail Sales, which shows the same data but excludes the price of automobiles. The reason for the adjustment is that automobiles usually account for a big chunk of retail sales data – about twenty percent or so. Therefore, to get a clearer view of the data, the Core Retail Sales indicator helps in this respect.
The image above shows the October Retail Sales breakdown. We see that restaurant spending declined in October, but not that much as in April. Also, clothing took a step back, but again, not that much as in April.
However, one cannot help noticing the similarities between October and April. While the spending amount is not similar, a pattern exists. To further support the case, JP Morgan just stated that its card users saw a pattern similar to March. More precisely, they prefer spending more on grocery and discount shops rather than going out at a restaurant.
It comes to confirm the slowdown in the Retail Sales data shown this week. Does it also tell us that the consumer’s reserves are exhausted and, without further stimulus, the rise in Retail Sales is over?