- US retail sales are expected to continue rising in July.
- Amid fears of a recession, the bright side of the economy may shine.
- FXstreet´s Consumption trend data point to an upside surprise.
For many visitors to the US, it is the land of shopping malls, outlets, and the best online deals. Consumption consists of around two-thirds of the US economy, making every retail sales release a critical market mover.
And the upcoming release for July is of even higher importance. Fears of a forthcoming recession have gripped markets as the yield curve has inverted – a previous hint of a downturn – and as the US-Sino trade wars remain far from being resolved.
Household expenditures have also played a substantial role in America's outperformance in the second quarter. Personal consumption rose by 4.3% annualized, around double the growth rate of 2.1%. An annualized growth rate of 2.1% is comparable to 0.5% quarterly – better than Japan at 0.4% – and far better than the UK and Germany, which saw output squeeze.
And now, we will know how the US shopper performed in July – the first report for the third quarter.
Expectations stand at further gains, albeit weaker than the robust rises seen in June. Headline sales carry expectations for an increase of 0.3% against 0.4% last time. Sales excluding fuel are forecast to repeat the 0.4% increase. And the all-important control group is predicted to advance by 0.3% after a leap of 0.7% beforehand.
Scenarios for the outcome and the dollar
1) As expected – dollar modestly higher: Comparing to historical trends, these expectations are balanced. If expectations are met, the US dollar may edge up as it will have confirmed that the consumer is keeping the economy afloat. Changes will likely be limited in such an "as expected" scenario.
2) Weak data – risk-off reaction: In case sales disappoint by remaining stagnant – with some figures showing modest growth and others, marginal declines – concerns may grip markets. In this scenario, the dollar may drop against the safe-haven yen and the franc but rise against commodity currencies. It may wobble against the euro and the pound – which have troubles of their own.
3) Beat – risk-on reaction: If American shoppers maintained June's pace in July and bought more than expected, markets will cheer, and the dollar will have room to rise – especially against safe-haven currencies and also against the euro and the pound. However, it may lose ground to the commodity currencies such as the Australian and Canadian dollars which may advance alongside stocks.
To what direction may the figures surprise? We will use FXStreet's Consumer Trends data for that.
Consumption trends point to an upside surprise
Here are the figures, with an explanation below.
Consumer Behavior | Impact | Last | Trend | Last 3 | Last 5 | Last 10 |
---|---|---|---|---|---|---|
Retail Sales Control Group | 3 | 0.70% | Up | 0.40% | 0.40% | 0.31% |
Retail Sales MoM | 2 | 0.40% | Up | 0.23% | 0.42% | 0.22% |
Retail Sales ex Autos MoM | 2 | 0.40% | Up | 0.33% | 0.36% | 0.17% |
Personal Spending | 2 | 0.30% | Neutral | 0.33% | 0.40% | 0.30% |
Core PCE QoQ | 2 | 1.80% | Neutral | 1.60% | 1.70% | 1.69% |
PCE QoQ | 2 | 2.30% | Down | 1.43% | 1.58% | 1.73% |
Consumer Confidence | Impact | Last | Trend | Last 3 | Last 5 | Last 10 |
---|---|---|---|---|---|---|
UMich Consumer Sentiment Index | 3 | 98.40 | Up | 98.87 | 98.44 | 97.16 |
Housing-related Consumption | Impact | Last | Trend | Last 3 | Last 5 | Last 10 |
---|---|---|---|---|---|---|
Existing Home Sales MoM | 2 | 5.27M | Neutral | 5.27M | 5.30M | 5.21M |
New Home Sales MoM | 2 | 0.646M | Neutral | 0.648M | 0.661M | 0.629M |
Housing Starts MoM | 2 | 1.253M | Up | 1.252M | 1.211M | 1.205M |
Inflation-related Consumption | Impact | Last | Trend | Last 3 | Last 5 | Last 10 |
---|---|---|---|---|---|---|
Core PCE - Price Index YoY | 2 | 1.60% | Down | 1.60% | 1.62% | 1.75% |
Core PCE - Price Index MoM | 2 | 0.20% | Up | 0.20% | 0.18% | 0.14% |
Personal Income MoM | 2 | 0.40% | Neutral | 0.47% | 0.34% | 0.35% |
As the table below shows, most indicators are pointing to the upside. As mentioned earlier, the previous report trends up. Another critical indicator is the forward-looking Consumer Sentiment Index by the University of Michigan, which is also advancing. Rising housing starts – which trigger the consumption of furniture and other household products – add to the positive picture.
Several indicators are mixed. They include personal spending and also sales of new and existing homes. Similar to housing starts, people tend to increase buying when they move – and these figures are stagnant. On the downside, some of the inflation indicators are trending lower – showing that a rise in consumption fails to ignite broad price pressures.
Nevertheless, FXStreet's Consumption Trends provide more hope than despair – signaling a higher chance of an upside surprise, leading to a risk-on reaction as described earlier.
Conclusion
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
![EUR/USD stays below 1.1100, looks to post weekly losses](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/european-euro-coin-on-top-of-american-dollar-bill-11292130_XtraSmall.jpg)
EUR/USD stays below 1.1100, looks to post weekly losses
EUR/USD continues to trade in a narrow range below 1.1100 and remains on track to end the week in negative territory. Earlier in the day, monthly PCE inflation data from the US came in line with the market expectation, failing to trigger a reaction.
![GBP/USD struggles to find a foothold, trades near 1.3150](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/GBPUSD/iStock-157771037_XtraSmall.jpg)
GBP/USD struggles to find a foothold, trades near 1.3150
GBP/USD stays on the back foot and trades in negative territory at around 1.3150 on Friday. The US Dollar holds its ground following the July PCE inflation data and doesn't allow the pair to stage a rebound heading into the weekend.
![Gold retreats toward $2,500 ahead of the weekend](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/gold-bars-50657756_XtraSmall.jpg)
Gold retreats toward $2,500 ahead of the weekend
Gold stays under modest bearish pressure and declines toward $2,500 in the American session on Friday. The 10-year US Treasury bond yield edges higher toward 3.9% after US PCE inflation data, causing XAU/USD to stretch lower.
![Week ahead – Investors brace for NFP amid Fed rate cut speculation](https://editorial.fxstreet.com/images/Macroeconomics/EconomicIndicator/Employment/NFP/america-back-to-work-gm178972493-25143312_XtraSmall.jpg)
Week ahead – Investors brace for NFP amid Fed rate cut speculation
Here comes another NFP week, with investors eagerly awaiting the results as they try to discern the size and pace of the Fed’s forthcoming rate cuts. The weaker than expected July numbers triggered market turbulence, instilling fears about a potential recession in the US.
![Easing Eurozone inflation to back an ECB rate cut in September](https://editorial.fxstreet.com/images/Macroeconomics/Countries/Europe/Eurozone_countries/Eurozone/eu-flags-flying-at-the-european-commission-building-brussels-belgium-24759579_XtraSmall.jpg)
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.