The monthly US retail sales report is due to come out today.
Data from the Commerce Department is forecast to show that retail sales will rise by 0.3% on both the headline and the core.
In August, headline retail sales rose 0.4% while core retail sales were unchanged. Headline retail sales eased to 0.4% after rising 0.8% in July.
The gains in August were only moderate with most of the heavy lifting done by a jump in the auto sales sector. The report in August underlined the fact that consumers were more cautious. Core retail sales, which exclude autos, had remained flat and this was the first time since February this year.
Get our Weekly Commitment of Traders Report: - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.
Get Our Free Metatrader 4 Indicators - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter
While retail sales declines were expected following the surprise jump in July, the trend seems to be turning further down south. This comes as the US and China trade war intensifies, leading to declining exports. Amid the scenario, the onus falls on consumer spending to drive retail sales higher.
Furthermore, online sales continue to eat into the market share of traditional retailers. In both July and August, online sales rose 1.6% respectively on a month over month basis.
The forecasts for weaker headline sales come on the back of reports that the auto sales for September were weak.
Auto Sales Slump in September
After maintaining a healthy trend, auto sales pulled back strongly. This led to auto dealerships giving away hefty incentives in order to clear out old inventory.
The monthly auto sales report for September was disappointing. Some of the big Asian car makers such as Toyota and Honda reported double-digit declines during the month. This was even worse than the expected declines.
Part of the fall is also because of fewer business days in September.
It is estimated that US auto sales fell more than 12% during the month. However, industry watchers remain hopeful that auto sales will pick up amid falling interest rates.
But, at a different level, the slide in the auto sales continues. This raises concerns that car sales could eventually collapse. The slowdown is putting car dealers under pressure amid shrinking margins.
From the retail sales perspective, weaker auto sales could pull headline retail sales lower. Therefore, it is likely that the data could either match or come below estimates.
Will Weaker Consumer Confidence Erode Retail Spending?
Besides the slump in auto sales, consumer confidence was also weaker during the month.
The Conference Board’s consumer confidence report slipped to 125.1 from 134.2 in September. This was the biggest monthly declines in nine months.
According to the report, consumers were less positive in their assessment of the economy and the current conditions. In August, consumer confidence was at 134.2 compared to 135.1 from the initial reports.
If the weaker consumer confidence report translates to lower spending at retail outlets, the data could come in much lower than forecasts.
The markets are currently assigning at least two rate cuts for the remainder of this year. This view comes amid weakening growth in the United States. Fed members, according to the recent Fed minutes, also expressed concerns about the misalignment between the Fed and the markets.
A weaker retail sales report could, however, help cement expectations for another rate cut at the very least. The jobs report for September showed that wages grew at a slower pace alongside the number of jobs added.