Wednesday, March 13, 2013
This morning’s strong Retail Sales report will likely offset the soft factory sector data out of the Euro-zone in today’s trading session, helping stocks maintain the overall positive tone of recent days. Hard to tell if this will be enough to push the S&P 500 closer to the new all-time highs that other indices have reached already, but it will likely be good enough to offset the pre-open softness.
The Retail Sales numbers came in better than expected, both on the ‘headline’ as well as the part that excludes gasoline and autos. The ‘headline’ strength of +1.1% relative to expectations of +0.5% gain was mostly due to high-priced gasoline sales, but the report shows plenty of strength even otherwise.
Excluding autos and gasoline, Retail Sales were up +0.4%, better than the expected +0.2%. Even the so-called ‘control’ component which excludes autos, gasoline and building materials and feeds into GDP calculation, came in better than expected at up +0.4% vs. the +0.2% expected. Revisions were mixed, with January revised higher and December revised lower.
The concern has been that the strong consumer spending momentum in the fourth quarter would not carry into the current period, due to the payroll tax hike, higher gasoline prices, and delayed tax refunds from the IRS. We didn’t see evidence of that in last month’s Retails Sales data or in today’s numbers, but a number of retailers including Wal-Mart (WMT), Target (TGT) and others cited those factors in ‘explaining’ the softer start to the year. The only plausible explanation for this seeming disconnect is that improvement is wages is helping offset the hits to household buying power from the tax and gasoline headwinds.
If that is a correct reading of the ground realities -- by no means a certainty at this stage -- then consumer spending likely accelerated in the current period from fourth quarter’s 2.1% pace. This would mean that we could potentially see a better GDP print outside of government spending in the current quarter.
Director of Research