US Retail Sales
No doubt about what's grabbing the attention today - it's US retail sales value, which fell 1.9% mom, or, if you ex-out vehicle sales, fell 2.3% mom. That's the worst since February 2021, and since these are value numbers, worse than they look, since the US was running CPI inflation at 7% yoy in December.
The immediate reaction is to blame it on the resurgence of covid, but that won't wash. First, the most recent covid surge in the US kicked off around 18th December, by which time I guess most Christmas shopping decisions would already have been made.
And if it was covid doing the damage, you'd expect to see restaurants deserted, and internet sales soaring. But that's not what happened: cafes & restaurant sales fell 0.8% mom only, whilst non-store sales dropped 9.5%. Conclusion? Covid ain't responsible.
Inflation almost certainly is. There are two contradictory reactions to inflation: the first is 'well, I'm not paying that much for it' and the other is 'better grab it now before the price goes up again.' The US consumer is in the first state - holding back as sticker shock kicks in.
Earlier this week, I talked about how confidence surveys showed the US consumer with a 'decent scepticism' about economic prospects, and worried about financial markets.
The Uni of Michigan consumer sentiment survey showed the same today, with the index down a further 1.8pts, with current conditions down 1pt and outlook down 2.4pts. Not panic, but certainly worry.
Nonetheless, the retail fall suggests things may be a bit tighter than that.
The details of the Uni of Michigan survey describe how inflation is eroding confidence. Three quarters citing inflation as the worst problem, and 33% reporting their finances weaker than a year ago. And inflation is hurting the lower paid the most: the index fell 9.4% mom for those with incomes below $100k, but rose 5.7% for those earning more than that.
I suspect there's another thing at work too: the rise in bond yields is shrinking the opportunity to raise disposable income by refinancing your house. Last week average 30yr fixed rates were running at 3.52%, compared with 3.24% at the beginning of December. Refinancing activity is down about 15% from the end of November, and this still accounts for 64% of all applications.
To re-iterate: there's no more 'catch-up' spending to be done in the US; and if the US is at or near full employment, continued demand growth will be sustained only if workers shift from low productivity to higher-productivity sectors to secure non-inflationary wage growth. That's the challenge for 2022.
