Last Thing The Fed Sees Before Its Rate Hike Decision Will Be Very Ugly

Earlier we warned that based on the latest Gallup poll of some 15,000 US shopping adults (and thus far more accurate than the Department of Commerce seasonally adjusted, goal-seeked retail sales data), retail spending in August will be a stark disappointment to those once again holding off for a rebound in that all important driver for the US economy – consumer spending. As we showed, August spending was the weakest in nominal dollar terms since 2012…

…  and was also the lowest since March, as a result of 4 consecutive months of y/y spending declines.

Earlier today, Bank of America confirmed just that using its internal data, which tracks aggregate spending on credit and debit
cards, showing that consumers reduced spending in August.

And they reduced it substantially: According to the Bank, while the drop was not as pronounced as what Gallup reported (which saw average daily spending slide from $91/day to $89/day), it was still enough to dramatically impact the economy: “our headline measure, retail sales ex-autos, plunged 0.8% mom seasonally adjusted.”

The weakness was not focused geographically, and was widespread across the nation:

As BofA notes, “there was broad weakness in retail sales ex-autos and gas spending growth across metropolitan areas, with seven of the ten largest MSAs showing a monthly decline. The biggest monthly decline was in Dallas, followed by Miami and San Francisco. Both Dallas and San Francisco have experienced strong growth over the prior six months, showing a solid recent trend.”

What could be causing this at the aggregate level? One explanation is far weaker than expected back to school sales:

Retail sales in August are typically boosted by back-to-school shopping. Our proxy for back-to-school sales, which includes teen retail stores, sporting goods and categories within electronic stores and school supplies, was up 2.6% yoy on a seasonally adjusted basis. But this is a slowdown from the past few years and consistent with the slower yoy trend in retail sales ex autos and gas (Chart of the month).

The late timing of the Labor Day holiday may have created a downside bias to back-to-school sales this August. Many schools start after Labor Day, which may push back-to school sales from August to September. Indeed, the seasonal factor for our back-to-school composite seems particularly large this year given the notable adjustment in the timing of the Labor Day holiday to the 7th of September this year from the 1st last year.