BofA Finds Consumer Spending Tumbled In December, Warns Of Disappointing Retail Sales
By Tyler Durden
With this week’s most important economic data point – this Friday’s retail sales – fast approaching, economists are keen for clues if this key datapoint giving insight into the health of the US consumer will maintain the recent outsized spike in favorable and better than expected economic data, or if adversely, it may be a downward inflection point which could have significant implications on the dollar trade as RBC explained earlier. And according to BofA’s internal debit and credit card data, always released just ahead of the retail sales report, it looks like it will be the latter.
As Bank of America’s chief US economist Michelle Meyer reports, the aggregated BAC credit and debit card data showed that retail sales ex-autos declined 1.0% mom seasonally adjusted in December. “This contrasts with other indicators of consumer strength including reports of a robust holiday shopping season, a rebound in consumer confidence and strong autos sales” according to Meyer.
Actually, based on earnings reports of those companies who have recently closed their quarter, a weak December is precisely what one should expect, further corroborated by JPM’s satellite imagery at early December showing empty parking lots (recall: “Satellite Imagery Reveals Sharp Retail Spending Slowdown After The Election“) and a plunge in brick and mortar sales, which has been greater than the offsetting pick up in online sales.
This is how the bank’s adjusted retail spending data looks when charted.
As BofA notes, “the BAC aggregated card data showed that retail sales exautos declined 1.0% mom SA in December. This reversed the strong gains over the prior few months, leaving the 3- month average growth rate to slow.“
Amusingly, while in the past everyone ignored seasonal adjustments when it comes to retail sales (a reconciliation which as we have shown on various occasions, would always undermine the adjusted data), this time it is BofA which tries to justify the weakness with seasonal adjustments. This is how it “justifies” the sharp drop in data:
We think the explanation is that our BAC aggregated card data is biased lower due to our seasonal adjustment process. Note that the Census Bureau uses a similar approach, and therefore, we expect their data to be subject to a similar downward bias.
The two major holidays in December — Christmas and the New Year — are fixed in terms of the date but not in terms of the day of the week. This year, Christmas Eve and New Year’s Eve both fell on Saturdays. Spending on those dates was much weaker than on a typical Saturday, presumably since people were enjoying the holidays. However, the seasonal adjustment process treated these days like any other Saturday. This suggests that the adjustment process “over-fits” the data and biases the seasonally adjusted figures lower.
We think the bias in December should correct in January, translating to strong growth in January. A strong gain in January would support our view that the weakness we are seeing in the data is simply …read more
Source: BofA Finds Consumer Spending Tumbled In December, Warns Of Disappointing Retail Sales
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