Three Reasons Why Retail Sales Are About To Disappoint Bigly

Tyler Durden's picture

On Friday the Department of Commerce will report August retail sales, a material report which all else equal, may influence whether the Fed proceeds with its plans to unveil balance sheet tapering in its upcoming FOMC meeting. However, as we discussed last week, the report, together with virtually all other high frequency economic reports, will be materially distorted by the destructive aftermath of hurricane Harvey (Irma's impact will be felt in the September retail report).

While Goldman recently showed the historical impact of hurricanes and other natural disasters on virtually every economic data series...

... of particular interest in the coming days will be the biggest driver behind the US economy, namely retail spending, and specifically whether the recent natural disasters led to a sharp - and potentially sustained - slump. According to internal Bank of America credit and debit card spending data released as usual just days ahead of the official government report, there does appears to be a substantial adverse impact. The question is how much of this is secular, and how much is a continuation of recent weakness in retail spending. Further complicating matters is a seasonal quirk, with the August spending report coming at the peak "back to school" spending period, coupled with the recent Amazon Prime Day which led to further distortions in retail spending patterns.

As BofA's Michelle Meyer calculates, retail sales ex-autos, as measured by BAC aggregated credit and debit card data, declined 0.1% mom seasonally adjusted in August, leaving the 3-month moving average tracking flat for the month. Consumers shifted spending to gasoline stations, which were up strongly in the month, owing in part to Hurricane Harvey.

After controlling for the increase in gasoline spending, retail sales ex-autos and gasoline declined 0.4%: one of the sharpest declines YTD, and a confirmation of the continuing divergence between BofA (blue line) which has hugged the flatline in recent months, and official government data, which while week, has demonstrated modest Y/Y growth.

According to Bank of America, there are three key factors influencing the data this month:

  1. Hurricane Harvey;
  2. the pull-forward of retail spending into July by Amazon Prime Day; and
  3. back-to-school shopping.

In an attempt to isolate the influence of Hurricane Harvey which made Texas landfall on August 25, BofA first examined daily spending in Texas which shows that spending picked up in the days heading into the hurricane but remained depressed through the event and in the days after, as one would expect.

Meyer explains:

We estimate that the net reduction of spending in Texas sliced 0.1-0.2pp from the monthly growth rate of total retail sales ex-autos in August. We then dug deeper and looked at the impact by the type of spend which reveals that necessary items (food and gasoline) increased in the month while more discretionary items declined (Chart 2). We also measured spending by major region in Texas (MSAs) which shows significant decline in Houston but continued growth in regions not hit by Harvey (Chart 3)

The charts below provide further evidence that Harvey caused a net drag to spending in the areas hit directly. In contrast, there was trend-like growth in MSAs in Texas which were not directly impacted by Harvey.

However, it wasn't just Harvey explaining the sharp drop in ex-gasoline sales. In addition to the adverse reginal impact from Harvey, August retail sales were also likely held
back by the strong success of Amazon Prime-day in July. BofA data shows that Prime Day pulled forward activity from August into July.

Finally, and perhaps most concerning, the third indication that retail sales are set to disappoint, BofA writes that while it did not find much of a story for the back-to-school season, its proxy for back-to-school sales showed growth of just 2.4% yoy, down more than 50% the 5.4% yoy pace last year.

This is a problem because according to the National Retail Federation's annual survey, families were projected to spend approximately $29.5bn on back-to-school items which would translate to an 8% yoy increase from the prior year's spending plans. Unfortunately, those spending plans have not translated to actual spending as expectations have once again overshot spending patterns as they did in 2011 and 2012 but were below in 2013-2015.

Finally, broken down by category, BofA finds that on a % mom basis, consumer spending declined in most categories in August with only food and beverage, gasoline stations and cruise showing an increase. As noted above, spending on food and beverage and gasoline stations likely saw a boost due to Hurricane Harvey as households stocked up on essentials.

BofA's Bottom line: the weakness in August retail sales, already expected to come in at near stall-speed levels, is likely exaggerated by the hurricane and July prime-day.

The good news is that while Hurricane Irma may depress spending in September, retail sales typically bounce back after a natural disaster, suggesting upside into 4Q. Unless, of course, it forces an even greater decline in spending, as the following charts showing the secular decline in retail sales indicate.

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Hammer823's picture

No worries, data hasn't mattered for almost 10 years now.  The stock market is simply computer programs run by the Institutions at the behest of Central Banks. The stock market is Nationalized. The U.S. has a system of wealth, $30 Trillion strong, and stock prices will continue to rise, regardless of nuclear news, retail sales, jobs data, or company profits. 

All dips, big and small will be bought.

Ghost of PartysOver's picture

Harvey, Irma and Trump will be the scapegoats.  Just watch.

PS Hammer823 gets its.

Hammer823's picture

Right...just like winter existing was the scapegoat time and time


GUS100CORRINA's picture

Three Reasons Why Retail Sales Are About To Disappoint Bigly

My response: Let me give everyone a fourth reason: THE BOTTOM 99% HAVE NO MONEY AND ARE LEVERAGED UP TO THEIR EYEBALLS!!!!!

ejmoosa's picture

Fear not however, the Feds are getting their take...record tax collections...same at my state and local levels.

Peacefulwarrior's picture

S-L-O-W motion deflationary collapse only sustaining itself due to Central Bank intervention

Nobody For President's picture

Hey, I may be leveraged, but my beverage spending is up.

Hammer823's picture

Thanks Ghost.  Not only do i get it.  I trade it.  Have been buying the index etf dip for over 7 years.  Easiest money I ever made.  I'll never buy and hold individual stocks ever again.

junction's picture

Data matters, ask those Motel 6 employees in Phoenix (and who knows where else) who ratted out to ICE guests who were potentially undocumented aliens.  All for a $100 payoff.  More proof we are in a Nazi police state where big government lies rule.  While the ICE agents were making their arrest quota, Air Force cargo planes continue each week shipping in tons of partially processed opium to military dropoff zones at El Toro air station and elsewhere.

Kidbuck's picture

Putting a bounty on illegals/invaders is an excellent idea. ICE should expand this program and advertise it widely.

youngman's picture

Yes paying a $100 bounty saves us $30,000 a year in welfare costs if not more

grasha87's picture

I have created a free market currency that helps alleviate unemployment and recessions that the Fed creates, and it's based on Say's law:

CRM114's picture

True, but as someone trying to work out how, and especially when, the crash is going to happen, I appreciate this kind of thorough analysis.

UmbilicalMosqueSweeper's picture

Open your eyes and ears. Look is already in progress. Forget the anal-lists.

CRM114's picture

I know that, but it isn't going to stay as a gentle deline forever, and the when of the big crash is very important.

j0nx's picture

Who got money for retail? All my money goes to healthcare, taxes and paying for illegals. All three of which the congress has failed to deliver on.

LawsofPhysics's picture

Correct. TPTB are committed to Global Weimar.

no going back now. In the meantime...

"Full Faith and Credit"

Lt. Frank Drebin's picture

1. Pretty much everyone already has all the crap they want or need.

2. Everyone is out of money.

3. People are slowing waking to how effed they are both financially and spiritually.


Advertising has us chasing cars and clothes, working jobs we hate to buy shit we don't need.

aliens is here's picture

It's ok because DREAMERS will come to the rescue since they are all hard working patriots, smart and educated people according to Pelosi, Chuck and Trump.

Hammer823's picture

Oh look, today's moderate losses already cut in half.

Where have we seen that before?

How about every down day since 2009.

You can take the automated bid reversing any losses to the bank every day of the week.

grasha87's picture

I have created a free market currency that helps alleviate unemployment and recessions that the Fed creates, and it's based on Say's law:

Haitian Snackout's picture

I'm sorry, I was reading about MCD's top line free fall. Now what was that you were saying? I guess financial engineering can work wonders at least for a while. While no doubt not a proxy for actual food, It sure paints a grim picture under the surface.

buzzsaw99's picture

too bad that $1000 phone came out too late for back to school shoppers.

Fake Trump's picture

Most Americans are just broke. 

UmbilicalMosqueSweeper's picture

Actually, sales will increase...can you say "Equifax?"

Gobble D. Goop's picture

They'll just put everything on sale.  So you can "SAVE" money.  The biggest, dirtiest, ugliest four letter con word in all history. You'll "SAVE" money when you buy it on sale.

I beg to differ.

The only money you've ever earned in your entire life is the money you "SAVED" BY NOT SPENDING IT.  The rest of your cash is now someone elses.

I may spend 20% less if I buy something on sale but I haven't "SAVED" a fricken dime, I just spent LESS.

I move the word "SAVE" be outlawed in every retail outlet and replaced with "SPEND LESS"


surf@jm's picture

I always like the statement...."We are having a sale"......

Of course everythings for sale.........but, what about a discount or price cut, on the sale?.......

And your correct....Every rich person I new was a tightwad....

They didn`t get rich by spending it all.......

Gobble D. Goop's picture

Yup.  Folks don't go to a retail outlet to "SAVE" money.  They go there to "SPEND" money.

I like sales.  I like spending less.  I don't like someone trying to con me, looking me right in the eye and telling me I'll save money buying his trinket or bauble.


Gobble D. Goop's picture

PS.  Rich People...

Theory of Richitivity:  Wealth is relative.  If I drive down across the railroad tracks and look at the folks there, I'm very wealthy.  If I compare them to some of the homeless folk I've met downtown, the folks on the other side of the track are unbelievebly wealthy.  It's all relative.

The true test of "Rich" is:  Are you satisfied?  My answer to that is yes.  Got plenty of food to eat, a daily hot shower.  And I'm really satisfied with my lawnmover. 22" Toro Self Propelled Rear bagging mulching mower.  Love that thing.  True happiness.  It signifies I have a roof over my head, yard to mow.  That's rich.  Even better, I got it on sale.  

surf@jm's picture

Actually.......The real definition between rich and poor is.....

Those who work for money, or those who`s money works for them........

J Mahoney's picture


We NEED TO IMMEDIATELY DO AWAY WITH a little known Asian subsidy which is KILLING us folks but enriching the richest man in the world (Bezo) and helping the middle class in China. Did you know a small package sent by an Asian online seller only cost them about $1.00 vs the $20.00 we would have to pay to send a package to Asia. We even provide tracking services on that freaking package. This was pushed down our throats thru the “heavy lobbying” by Ebay and Amazon.

DO AWAY WITH the “Bezo Subsidy” or more easily thought of as “BS” --  Just the headlines about retail store closings tell us about jobs being lost and commercial real estate getting ready to tank, (Store closings---just a few—Penny’s 130-140 stores, Sears/Kmart 150, Macy’s 100, Foot Locker 100, Kohls 16, Office Depot 200, Abercrombie 114, BCBG 118, HH Gregg 88, Pier One 100). Without this subsidy, brick and mortar store would INSTANTLY be competitively priced on THOUSANDS more items.

Problems with this is:

1) Post Office loosing hundreds of millions delivering these cheap packages (taxpayers left holding the bag making up for their losses and eventual USPS pension shortfalls)

2) Uninspected goods come in, many of which are in violation of intellectual property laws and safety regulations.

3) USA stores can’t compete- thus many previous full time jobs in retail have disappeared altogether or with lower paying and reduced benefit part-time jobs.

4) Foreign online sellers are NOT paying any sales tax, income tax, or tariffs like the importers in the USA.

5) Lost jobs equals social security taxes NOT COLLECTED--another freaking problem waiting to rear its ugly face.

6) If Asia online sellers had to pay AT LEAST the same postage we have to here in the US, there would be the same amount of goods coming into the country but they would be coming in thru ports and the use of rail and truck traffic thus helping those jobs too. Seems as if the Post Office has turn into a political hiring machine full of part time people from other countries that have trouble reading english and delivering to correct addresses.

SystemOfaDrown's picture

I don't want to here about Amazon. That's all smoke n mirrors. Fact is, American middle class is shrinking, period! Everything else is BS. 

surf@jm's picture

Three Reasons......

I`m broke.....

I`m in debt to my eyeballs.....

My welfare check isn`t big enough....

847328_3527's picture

Retail is going to get a bloodbath.


My manager friend tells me they are already gettin gin Thnksgiving decorations an din a few weeks Chirstmas ornaments and he has no place for them in the storeroom they are so full of shirts, dresses, etc that simply has not sold. He says even with triple discounts on top of coupons and specials people simply have no money.

That's odd?

8 years of "Change you can believe in has consequences!"