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Mixed data from the retail sector hit the market on Monday as retail sales for January rose unexpectedly while the already-poor figures for the month prior were revised even lower. January sales rose 0.2% vs 0.1% expected.

Key Takeaways

• US retail sales rose unexpectedly in January by 0.2% vs 0.1% expected, with building material purchases and discretionary sending boosting numbers.
• December figures were revised even lower than initially reported, now down -1.6% vs the initial figure of -1.2%
• The data points to stabilization in the economy, but Q1 GDP is expected to reflect a recent slowdown.

The figures for January retail sales were delayed due to the 35-day partial shutdown f the US government which has had a significant and disruptive impact on the collection and distribution if economic data. The report for January shows that core retail sales which excludes the volatile components of automobiles, gas, building materials, and food services, climbed 1.1% after a 2.3% drop in December. Core retail sales are the leading indicator of the consumer spending aspect of GDP.

Online and mail-order retail sales jumped 2.6%, the biggest fain since December 2017. Building materials sold even better with sales at stores rising 3.3%. Discretionary spending rose for the month, with a 0.7% increase in bars and restaurants, and a significant 4.8% increase in musical instrument and book shops, the biggest jump in 6 years. Food and beverage stores saw the biggest sales increase since April 2016.

On the downside, auto dealership sales dropped 2.4%, the biggest drop since January 2014. Service station sales dropped 2% as gasoline prices fell, and electronic and appliance shops as well as clothing and furniture stores all saw reduced sales. Some analysts viewed the mixed report as wholly negative, while others took a more balanced approach.

Disturbing thing about retail sales growth stalling is non-store retail growth plummeted in December, inventories are building incl. autos, & rail traffic suggests no pickup into March. #RetailSales pic.twitter.com/8p9ZdO924i

— Greg S. (@GS_CapSF) March 11, 2019

Q4 GDP to be Revised Downward?

Core sales were initially reported to have dropped -1.7% in December, but the recent report shows that the true figure was far lower, which will likely have an impact on the true Q4 and overall 2018 GDP estimate. The current estimate reports 2.6% annualized growth for Q4 of 2018.

The trade deficit and construction spending reports led some market analysts to speculate that the true Q4 figure was lower and would need to be revised downward, a view supported by the recent retail sales report.

Meanwhile, Q1 estimates are below 1.5% with a recent government report indicating a yearly low in job creation at just 20,000 jobs created in February. The downward trend supports the policy suggested by the Fed to reduce or halt rate hikes for 2019.

Market Reaction

Financial markets saw little reaction to the news. Gold bounced off of resistance at around $1,300/oz today after rising from a session low of $1,290.80/oz and is now trading at the low end of the range, down -0.26% and last trading at $1,293.61/oz.

Risk attitudes are reportedly still high this week, which could explain the strength of the resistance at $1,300 as gold acts as a safe haven during risky, volatile market sessions. April gold futures are currently down -0.63% at $1,293.61/oz.

Fed Chairman Jerome Powell made a statement on Sunday saying that US economic outlook is still positive and that there is no call for increased interest rates at this time.