Brace For A Plunge In Retail Sales

When the Census Bureau releases retail sales data at 830am on Valentine's Day, it will be the first time in two months that markets have gotten an update on the state of US retail spending, as the January release was postponed due to the government shutdown (Thursday's release will be for December data). And if Bank of America's proprietary card spending data is any indication, it's set to be a doozy.

As BofA's economists summarize the latest internal spending data, consumer spending weakened at the turn of the year, following a period of solid performance. In fact, retail sales ex-autos, as measured by the aggregated BAC credit and debit card data, tumbled 0.3% month-over-month seasonally adjusted in January - the biggest drop in three years. This follows a flat reading in retail sales ex-autos in December.

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Turning to the January BAC internal data, in January, spending for 4 out of 14 sectors increased in the month, showing broad-based weakening. The biggest gain was in lodging, where the trend has been robust. Spending at home improvement stores was also up impressively but that follows a weak trend. On the flip side, spending at gasoline stations, clothing, and food & beverage saw the biggest mom decline. As mentioned earlier, the drop at gasoline stations was due to a sizeable decline in gasoline prices. On a yoy basis, home improvements and furniture were the only sectors that saw yoy declines outside of gasoline stations. This is consistent with our view that the housing market has likely peaked and will continue to slow down in the coming months.

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The bank sees two factors influencing the data: the polar vortex and the government shutdown. The polar vortex delivered historically freezing weather to parts of the Midwest at the end of January which was visible with weaker spending in the metropolitan areas of Chicago, Detroit, and Minneapolis. This contributed to a particularly big drop in activity in the Midwest.

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