Retail Sales March 2024: Until You Drop

Retail sales sent the UST market back into worry mode, but equities were OK with another robust consumer signal after a trying weekend.

Apr 15, 2024

Very strong retail sales numbers get us back in the weeds of day-to-day economics as the Middle East beast goes back in its cave for today (so far).
The earlier PCE numbers to close out March showed consumption outpacing disposable income, so this set of numbers will just keep the pressure on the FOMC dilemma with jobs strong, spending high, and CPI not very supportive of cuts so far in 2024.
We now have another round of ammo that highlights solid consumer spending, so the UST curve is back to the races pushing higher today.

The Retail Sales release shows another material beat vs. consensus and posted a second consecutive set of numbers after upwards revisions that looks like Aug-Sept 2023 when the UST curve was rattled on the way to Oct 2023 highs. The silver lining of the late summer whipsaw into fall is that the 4Q23 period transitioned into a massive 2-month rally in the UST and equities for Nov-Dec. That means the battle continues, and the next round of data awaits.

The streaks of numbers on the consumer from jobs to income and outlays is not looking good for the UST bulls right now. We add some links at the bottom to the key recent indicators with jobs and inflation releases trends at the top of our priority list. The “smaller headline” releases are also not helping. As we go to print, we see a double-digit move higher in yields from 5Y to 30Y.

Industrial Production comes out this week with some housing releases (Starts, Existing Sales) We have the first cut at 1Q24 GDP next week (Thursday) and the latest PCE release (Income & Outlays) after that on Friday.

The above chart tells a strong consumer story but not overwhelmingly strong, so it is good enough to keep the Fed on edge but not enough to feed the super bears and the “raise rates now before the world ends” crowd. The ex-Autos number at +1.1% sets the stage for what will be an interesting spring selling season in automotive given stubbornly high financing rates for consumer durables. Even there, the auto players can use incentives.

"Core Retail” at +1.1% is making equity markets happy and sends many of the same signals we have been seeing. Nonstore Retailers at +2.7% is a key number at a weight of over 17% of the mix. That 2.7% is a rebound off of a muted start to the year and the best since the 5.8% back in Jan22.

One line that often gets cited is Furniture since it can be a proxy for bigger ticket items that are in the next tier below broader remodeling planning or used cars and other bigger tickets lines that look at the broader mix of consumers. In used cars, financing rates can serve as another affordability barrier and the replacement cycle can be influenced heavily by the short end of the curve. In other words, more potential buyers can simply decide to wait.

In the end, the data was bad news for duration and another green light for PCE, the biggest line item in the GDP accounts. That PCE line will be a focal point in 1Q24 GDP numbers and the monthly PCE release next week.

Contributors:

Glenn Reynolds, CFA glenn@macro4micro.com

Kevin Chun, CFA kevin@macro4micro.com

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