BofA Has A Last Minute Warning Ahead Of Today's Retail Sales Number

With retailers reporting abysmal Q1 earnings data, there is much at stake in today's retail sales report, perhaps even more than in the CPI report (which either this month, or June at the latest, will post a steep drop due to energy "base effect" as oil prices today are now lower than a year ago). Yet despite the deplorable earnings reports by prominent retail names , Wall Street remains optimistic and expects a strong rebound in April, with consensus looking a +0.6% mom headline print increase and +0.4% mom rise in the core.

Such expectations may prove overly optimistic. The reason is that according to the latest Bank of America's internal credit and debt card spending report, retail sales ex-autos increased far less than consensus expects, or 0.2% mom seasonally adjusted. This leaves retail sales ex-autos running at a 0.1% mom rate on a three-month moving average. And while there are month to month fluctuations, the BAC data has converged with the Census data on a three-month average, which according to the bank suggest that "there are slight downside risks to the consensus forecast for Friday’s retail sales report. (Note that the BAC data in the chart is as of April while the Census data is as of March)."

Furthermore, the biggest risk appears to be in the divergence between actual data in grocery store spending and the government's seasonally adjusted estimates. BofA explains:

  • There has recently been a gap between our data and the Census Bureau figures for overall grocery store spending. Our data shows that card spending on grocery stores is showing no growth while the Census Bureau aggregate is up around 2-3% yoy.
  • This could reflect a categorization difference between our data and the Census figures. Our data is based on classification by Merchant Categorization Codes (MCC codes) while the Census Bureau data uses NAICS codes. There is generally strong overlap between the two coding systems, but differences do come up.
  • We expect the BAC and Census Bureau data to converge over time, but if history is a guide, this could take some time.

The silver lining, as has been the case for the past several years, is in online sales, where Amazon continues in its quest to become the monopoly provider of all online services. From BofA:

  • We continue to see retail activity shift toward online retailers. Using the internal BAC card data, we find that about 32% of core control sales ex-groceries (retail sales ex-autos, building materials, gasoline and groceries) are conducted online.
  • Importantly, the share of sales online continues to grow, which implies incremental disturbances to brick and mortar stores.
  • As we show in the subsequent charts, we find that competition from online retailers has expanded beyond the typical items (apparel, general merchandise, etc.) to food consumption.

The not so silver lining? Everything else.

Will BofA be right, and will today's potentially disappointing retail sales be the latest negative data point to cast even more doubt that the Fed will hike next month? Find out in just over an hour.