Devastating retail-sales revisions a kick in the gut to GDP optimists
The recent uptick in the stock market was widely touted as a sign that the dark clouds over the global economy had lifted.
As a result, gold has been falling this week in anticipation of the Federal Reserves policy statement Wednesday after its two-day meeting. Although its not expected to raise interest rates this week, conventional wisdom holds that it might do so at its June meeting.
But a funny thing happened on the way to the Marriner Eccles Building: U.S. retail-sales data were released for February, and the news was terrible for our consumer-driven economy, in which the manufacturing sector already is in recession.
Shocking 2-month decline: Retail sales fell 0.1% last month, and whats even worse, Januarys 0.2% gain was revised lower to a 0.4% drop. Retail sales have dropped 0.54% in the last two months the biggest sequential drop in a year, Zero Hedge noted.
Moreover, the new retail numbers bode ill for U.S. growth projections and for the idea that underlying economic conditions justify current stock prices. While the YoY change rose from +3.0% to +3.1%, it remains below historically-recessionary levels and given the revisions suggests Q1 GDP growth markdowns are on their way with sales down MoM for every cohort from gas stations to furniture, Zero Hedge added.
Fed, top banks cut GDP: And ZH was correct: The Atlanta Feds GDPNow forecasting tool reduced its first-quarter growth estimate to 1.9% from 2.2%, citing the retail report.
And private investment banks also followed suit. Barclays slashed its U.S. GDP forecast from 2.4% to 1.9% based on the sour retail numbers. Credit Suisse cut its target to 2% from 2.4%, while TD Securities reduced its number from 2.3% to 1.9%.
Perhaps the strongest statement came from CNBC star Jim Cramer, who called the new stats devastating. Im just kind of flummoxed, he said. A number comes out that makes us feel great, and then that number is taken away.
Fed now in no hurry to hike: The retail number takes the notion of a Fed rate hike in March pretty much off the table, some analysts say, forcing the central bank to balance that poor data against a nominally strong February employment report.
At the moment, it is hard to see GDP with a 2% handle. Based on todays lackluster sales report, policymakers will be in no hurry to raise interest rates, MUFG Union Bank economist Chris Rupkey told Reuters.
A low-rate environment signals unease with the current economic picture and therefore is supportive for gold.