Source: Comprehensive from Wall Street News and Jinshi Data. Consumer spending accounts for two-thirds of the US GDP and is an important engine for economic growth. Will it exceed expectations in May after unexpected slowdown in April? In its latest report, Bank of America pointed out that: Based on the compiled bank clients' debit card and credit card data (this predictive indicator missed last month, but has been relatively accurate over the past year), total US household credit card spending in May increased by 0.7% YoY, and after seasonal adjustment, it declined by 0.9% MoM. Previously, in April, the average household credit card spending of Bank of America surged by 1.3%, but a decline of 0.7% was observed in March. Bank of America attributed these ups and downs to the seasonal distortion caused by the earlier Easter this year. Aditya Bhave, economist at Bank of America, said that: Four out of the past five months' retail sales data were affected by seasonal factors, and Bank of America's credit card spending data was particularly low on Easter Day, which is usually in April, but this year Easter is on March 31. However, seasonal adjustment factors cannot fully reflect this change. Seasonally adjusted spending in March was low, while April was high. We believe that the reason for the soft increase in spending in May is due to the unfavorable base effect. Nevertheless, Bank of America still made a prediction that the core retail sales growth rate may be twice the consensus expectation. It is expected that retail sales in May will increase by 0.3% MoM, and retail sales excluding automobiles will increase by 0.6% (excluding automobiles, gasoline, building materials, and food services). Another variable is that retail sales data announced this year often undergo large revisions, some upward (such as March) and some downward (such as January, February, and April). Bank of America pointed out that: This risk may continue, especially downward revisions. If other conditions remain unchanged, the revisions of retail sales data from the previous few months will impact the MoM growth rate in May. Bank of America also stated that the consumption of residents in the northeastern United States increased again during the Easter holiday, although not as much as in 2019. This reflects the possibility that the region may be regaining economic vitality. At the same time, the consumption growth rate of residents in other regions was not as good as in 2019. In addition, Bank of America also pointed out that, after undergoing a violent fluctuation before and after the epidemic, as of May 2023, the proportion of US consumers' freely available expenditures in total expenditures has basically returned to the pre-epidemic level. Fxstreet analyst Dhwani Mehta pointed out that if retail sales data greatly exceeds expectations or the Fed releases hawkish remarks, gold prices may face new selling pressure. Currently, the market expects that the MoM growth rate of US retail sales in May will be 0.2%, and the MoM growth rate of core retail sales in May is expected to record 0.2%, the same as in April. Although gold prices have shown interval fluctuations in the past week, risks still tend to be downward.

Consumer spending accounts for two-thirds of US GDP and is an important engine for economic growth. Will it exceed expectations in May after unexpected slowdown in April?

At 20:30 tonight Peking time, the US Department of Commerce will release May retail sales data, and Bank of America predicts that the month-on-month core retail sales in May will be higher than the market consensus.

Bank of America pointed out in its latest report;

Based on the compiled bank clients' debit card and credit card data (this predictive indicator missed last month, but has been relatively accurate over the past year), total US household credit card spending in May increased by 0.7% YoY, and after seasonal adjustment, it declined by 0.9% MoM. Previously, in April, the average household credit card spending of Bank of America surged by 1.3%, but a decline of 0.7% was observed in March.

Bank of America attributed these ups and downs to the seasonal distortion caused by the earlier Easter this year. Aditya Bhave, economist at Bank of America, said that:

Four out of the past five months' retail sales data were affected by seasonal factors, and Bank of America's credit card spending data was particularly low on Easter Day, which is usually in April, but this year Easter is on March 31.

However, seasonal adjustment factors cannot fully reflect this change. Seasonally adjusted spending in March was low, while April was high. We believe that the reason for the soft increase in spending in May is due to the unfavorable base effect.

Nevertheless, Bank of America still predicts that the growth rate of core retail sales will be higher than the market consensus.

It is expected that retail sales in May will increase by 0.3% MoM, and retail sales excluding automobiles will increase by 0.6% (excluding automobiles, gasoline, building materials, and food services).

Another variable is that retail sales data announced this year often undergo large revisions, some upward (such as March) and some downward (such as January, February, and April). Bank of America pointed out that:

This risk may continue, especially downward revisions. If other conditions remain unchanged, the revisions of retail sales data from the previous few months will impact the MoM growth rate in May.

Bank of America also stated that the consumption of residents in the northeastern United States increased again during the Easter holiday, although not as much as in 2019. This reflects the possibility that the region may be regaining economic vitality. At the same time, the consumption growth rate of residents in other regions was not as good as in 2019.

In addition, Bank of America also pointed out that, after undergoing a violent fluctuation before and after the epidemic, as of May 2023, the proportion of US consumers' freely available expenditures in total expenditures has basically returned to the pre-epidemic level.

Fxstreet analyst Dhwani Mehta pointed out that if retail sales data greatly exceeds expectations or the Fed releases hawkish remarks, gold prices may face new selling pressure. Currently, the market expects that the MoM growth rate of US retail sales in May will be 0.2%, and the MoM growth rate of core retail sales in May is expected to record 0.2%, the same as in April. Although gold prices have shown interval fluctuations in the past week, risks still tend to be downward.

Why is this data "terrifying" and what impact does it have on the market?

Terrifying 1: More timely than other data.

US retail sales data tracks consumer demand for manufactured goods. The data is released by the US Census Bureau in the middle of each month and is a key economic indicator that can be used to determine inflationary pressures and the overall direction of the economy. The data involved is reported by food service and retail stores in the United States and compiled and aggregated by the US Census Bureau. It is usually based on data sampling and is used to model the performance of the entire country. As a widely used economic indicator, retail sales data is one of the most timely data because the data it provides is just a few weeks ago. Compared to other data that lags behind, retail sales data can more timely judge the overall direction of the economy and consumption, which is one of the reasons why it is called "terrifying data". The data includes in-store, display, and other out-of-store sales of durable goods (with a service life of more than three years) and non-durable goods (goods with a service life of three years or less). It includes many different categories, including (but not limited to): clothing and clothing accessories stores, pharmacies and drug stores, food and beverage stores, electronics and appliance stores, furniture stores, gas stations, and new car dealers.

Retail sales data is usually presented in two ways: including or excluding automobile and gasoline sales. Most economists choose to analyze data that excludes automobile and gasoline sales, because these two figures tend to fluctuate more than other commodity sales, and the unstable data flow is mainly ignored because consumers have no other options.

Note: Bank of America uses billion yuan in its report, but it should be billion dollars. Nitronomics: Collating major news, providing insights on important events. Follow the WeChat public number Nitronomics to obtain insights that make finance simple.

Note: Bank of America uses billion yuan in its report, but it should be billion dollars. Retail sales data is usually presented in two ways: including or excluding automobile and gasoline sales. Most economists choose to analyze data that excludes automobile and gasoline sales, because these two figures tend to fluctuate more than other commodity sales, and the unstable data flow is mainly ignored because consumers have no other options.

In addition, retail sales data is easily affected by seasonal factors. It is generally believed that sales during the holiday season are the highest, such as during the Christmas shopping season. At this time of year, it accounts for a large part of the annual sales of many retailers. Product structure, 10-30 billion yuan products operating income of 401/1288/60 million yuan respectively.

Terror 2: A wide-ranging impact

Accurately measuring and analyzing retail data is crucial for determining the health of the US economy, as consumer spending accounts for two-thirds of the US economy. Rising inflation causes prices of most goods and services to skyrocket. At this time, consumers tend to reduce overall expenses, or prioritize essentials and choose inflation-resistant products.

Retail sales are an important indicator of economic shrinkage or expansion. The growth of retail sales indicates that the economy is expanding and developing healthily, while the decline in retail sales indicates the opposite. When spending increases, commercial activities will increase, thereby stimulating the economy and driving foreign investment. This in turn will affect other key economic components, such as durable goods orders, consumer confidence, trade balance, gross domestic product (GDP), and inflation. The wide range of its impact has been called another reason for its "terrible data".

Terror 3: Easily triggers huge market fluctuations

Retail sales data often brings significant fluctuations to markets, including stocks, bonds, foreign exchange, and commodities. This is the third key reason why it is called "terrible data".

As a leading macroeconomic indicator, healthy retail sales data usually brings good news to the stock market. Higher sales are good news for shareholders in retail companies because it means higher profits.

Bondholders' reactions to this indicator are quite contradictory. Economic prosperity is good for everyone, but a decline in retail sales and economic contraction will lead to a drop in inflation, which may cause investors to turn to bonds, ultimately pushing up bond prices.

The improvement in retail sales usually has a positive impact on the country's currency, but it also increases market volatility before and after the data is released. Retail sales data can have a significant impact on the Federal Reserve's decision-making process. For example, if retail sales slow down, the economic outlook may be considered bleak. This may prompt the Federal Reserve to relax monetary policy by cutting interest rates to stimulate the economy-if retail sales grow, the opposite may happen.

The following figure shows a 6-month snapshot of US retail sales data and the US dollar index (DXY), showing the positive correlation between the currency and retail sales. When retail sales perform well, the US dollar tends to strengthen, and vice versa. For large commodities such as gold, when the US dollar strengthens, commodity prices often fall. Of course, other factors that affect asset prices should also be considered.

Taking last month's data as an example, the monthly growth rate of retail sales recorded 0%, which was far lower than the market's expectation of 0.4%. As a result, the US dollar index fell sharply, while spot gold rose 0.41% within 5 minutes, with a fluctuation of nearly $20. After that, it continued to rise, with a cumulative increase of 1.18% on the same day.

Edited by Jeffrey