MACRO: Worsening condition of US consumers

• Headline figures surprised on the upside
• Weak core reading and unfavorable revisions

Retail sales in the US rose 0.3% in August, following a 0.4% decrease in the previous month and beating forecasts of a flat reading. Lower gasoline prices allowed consumers to buy other items, with spending rising for motor vehicles (2.8%); miscellaneous stores (1.6%); food services and drinking places (1.1%); building materials and garden equipment (1.1%); sporting goods, hobby, musical instruments and books (0.5%); general merchandise stores (0.5%); food and beverages (0.5%); and clothes (0.4%). On the other hand, sales at gasoline stations were down 4.2%, and decreases were also seen in sales at furniture stores (-1.3%); nonstore retailers (-0.7%); health (-0.6%); and electronics (-0.1%). Excluding gasoline stations, sales rose 0.8%. 

US retail sales rose an unexpected 0.3% MoM in August, however on a year-over-year basis, both headline and core retail sales growth slowed. Source: Bloomberg via ZeroHedge

At first glance today's report signals that the economy remains resilient despite headwinds from sky-high inflation and tightening financial conditions. However, core retail sales, which  better reflects consumer trends, decreased 0.30% mom in August, the first decline so far this year, while markets expected 0.1% gain. Also downward revisions point to weakening conditions of the US consumer and may lead to revision of GDP growth expectations for the third quarter.  On one hand, today's report emphasizes the need to bring down inflation. On the other hand, higher interest rates may still have a negative impact on the financial health of consumers, as rising mortgage payments would further limit consumption. Nevertheless this week’s data from the US, especially inflation figures raised prospects of an even more aggressive stance from the Fed. Markets are currently expecting the central bank to deliver a 75 bps or 100 bps rate hike next week.