US retail sales surprised to the upside today. The control group that feeds into GDP rose 0.5% m/m (consensus 0.3% m/m) following 0.0% m/m in September, revised from -0.2% m/m. Overall it puts core retail sales on a fairly solid trend , albeit still slower than the strong pace seen over the spring and summer months.
The number is a bit at odds with the weekly retail sales figures, which have been quite weak and were the reason we saw some downside risk.
Consumption is clearly getting support from a sharp drop in gasoline prices currently which underpins the view that the slowdown in growth will only be moderate.
Although consumption looks robust, it is still not as strong as ISM data is suggesting currently. We have also seen a slowdown in other indicators lately which makes the same point - for example wholesale sales for September. Hence, we still see some downside risk for ISM in the coming months.
For the Fed this is good news that gives the hawks more ammunition. With decent consumption growth the labour market should continue to tighten in coming quarters, putting the Fed firmly on track for a rate hike in Q2, with the risk increasing that it could come in early Q2 rather than late Q2.
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