US January retail sales preview

U.S. retail sales statistics for January will be released at 13:30 GMT, today.

Why retail sales and U.S. consumers are important?

• Domestic consumption of goods contributes about 25% of GDP or around $ 4.5 trillion. Among these durable goods such as vehicles, furniture account for only $1.5 trillion. Buying of non-durables such as food, clothing account for $3 trillion.
   
• Moreover, services, which is not covered by retail sales account for 45% of the GDP and mainly consumed at home.

Past trends –

• Retail sales, as well as, personal consumption expenditure have been growing in last few years. Fed has repeatedly said that personal income growth is robust. However, expenditure has remained weak compared to income. For inflation to remain upbeat continued expansion in domestic consumption is of utmost importance.

• Except for growing 0.9% in March, 1.2% in May and 0.6% in July, retail sales have remained subdued throughout 2015. In four months in 2015 growth has been negative.

• Even in 2016, the numbers were very weak.  February and March were negative. However, it has somewhat bounced back since April, when it grew by 1.3 percent, followed by 0.5 percent in May and 0.6 percent in June. But in July, retail sales didn’t grow at all and excluding autos it was down by 0.3 percent. In September it grew by 0.6 percent but declined by 0.3 percent in August. Retail sales growth was robust in October growing 0.8 percent excluding autos. It ended the year with 0.2 percent growth.

Expectations today –

• Today it is expected to grow by 0.3 both including and excluding autos.

Impact –

• The focus of the market is on FOMC interest decision, upcoming tax proposals from the US President Donald Trump and on political developments in the United States. So, better than expected retail sales likely to provide bullish momentum to the dollar, which is already upbeat but a weaker data is unlikely to make much of a difference in terms of direction.

Why are the retail sales so vital for the US now?

• Retail sales are proxy for domestic demand from consumers’ side and the US really is a consumption oriented economy.
   
• With strong dollar creating headwinds for exporters along with political uncertainties, what the US really needs is the support of the consumers to spend more and boost the economy.

• With Strong dollar importing deflation, US inflation really needs the support of the consumers.