US consumption likely slowed to 1.5% in Q1 2016 on weakness in durable consumption

The US retail sales for March declined 0.3% m/m, as compared with consensus expectations of a growth of 0.1%. However, the data for February has been revised to a flat reading as compared with the initial reading of -0.1% m/m. Decline in auto sales was mostly the main culprit for the drop in retail sales.

Motor vehicle and parts dealers sales dropped 2.1% as auto sales plummeted sharply on the month. The ‘control group’, stripping building materials, gasoline, autos and food rose only 0.1% m/m in March, as compared with the projection of 0.4% growth. The data for earlier months was revised up a bit.

Apart from the before mentioned drop in auto dealers, sales dropped in non-store retailers by 0.1%, in eating and drinking place by 0.8% and in clothing by 0.9%. Meanwhile, sales grew in health and personal care stores, building material stores and gas stations.

There are no alterations to the view of Q1 GDP growth and consumption with the upward revisions to the earlier two months, said TD Economics. Current quarter tracking implies that consumption decelerated to only 1.5% in Q1 2016 from 2.4% in Q4 2015 due to weakness in durable consumption, noted TD Economics. Q1 GDP seems to have grown at an annualized rate of just 0.6%, added TD Economics. The weak momentum leading into Q2 is slightly more concerning as that might very much come in lower than 2% unless services spending surges or retail sales recover sharply in April, according to TD Economics.

However, the consumers are expected to spend in the coming months after they have been saving from lower gasoline prices in the windfall, noted TD Economics. In the earlier months of 2016, confidence was weak with equity markets in bear territory through mid-February.

However, consumer sentiment is expected to increase and underpin spending in spring and beyond as US equities recovered to the highest levels in 2016, while job growth continues to be strong and as there are positive signs of developing wage pressure, added TD Economics.