Rebound in retail sales not as strong as expected

The trend in US retail sales over the past three months has been extremely weak when looking at it in nominal terms but some of this weakness is caused by significant deflation in goods prices. Real retail sales (deflated by core goods CPI) have increased around 5% annualised over the past three months, which is not weak in an historical context. 

The surprise is that US consumers have not reacted more positively to the combination of a significant boost to real incomes from lower gasoline prices, increasing wealth, high consumer confidence and decent job growth. Economic theory would suggest that private consumption growth should have been around 5% q/q AR in Q1. Instead, the personal savings rate has spiked and is now close to 6%. 

"Private consumption growth in Q1 is now tracking 2.0% q/q annualised and incorporating the weakness in export data, durable goods orders and structures as well, we take down our Q1 GDP growth estimate to 0.8% q/q AR from 1.7% q/q AR. For Q2, it will be difficult to reach GDP growth of 3.0% q/q AR, with private consumption heading into the quarter on a weak note, so we adjust our forecast to 2.8%. This leaves overall GDP growth at 2.5% in 2015." notes Danske Bank in a report on Tuesday