MNI 5 Things: Multiple Risks For US February Retail Sales

By Sara Haire and Holly Stokes

     WASHINGTON (MNI) - When the Advance Monthly Sales For Retail And Food

Services is released Wednesday, the outlook is for a 0.4% rise for overall

retail sales and a 0.5% rise ex-auto, based on an MNI survey of analysts. 

     Ahead of the release, we outline five themes for particular attention.

--ANALYSTS' HISTORY OF MISSES

     There has been a slight tendency in the past 10 years for analysts to

underestimate February retail sales. They have underestimated five times,

overestimated twice, and were on target for three Februarys. When looking at the

bigger picture in the last 20 years, analysts have overestimated the February

report eight times and underestimated eight times as well, but with a shift

towards underestimates more recently. While there is not a clear downside risk,

it is worth noting that when analysts do overestimate, they tend to be larger

misses, with the average registering a 0.58 percentage point miss vs a 0.25

percentage point when they underestimate. In the past 10 years, analysts have

also shifted towards underestimating ex-autos, with six underestimates compared

to only two overestimates.

--MARKETS TEND TO UNDERESTIMATE

     Following the unexpected 0.3% decline in January, analysts expect headline

retail sales to bounce back with a 0.4% gain, while markets are erring closer on

the side of caution with a whisper number of a 0.2% rise. Markets are

positioning to the lower side due to last month coming in much lower than

expected. In the past year, the whisper number has come in above the actual four

times, while it has come below the actual eight times, suggesting markets may

again be underestimating. Analysts have overestimated six times, underestimated

twice, and were dead on twice. The absolute average miss for analysts is 0.25

percentage points while the whisper's miss is higher at 0.57 percentage points. 

--MOTOR VEHICLES TO DRAG

     Analysts expect motor vehicles to be a modest drag, with the median

estimate for ex-auto retail sales one tick higher than the overall forecast.

Last month, motor vehicles sales dragged down the headline, posting a 1.3%

decline. Given that the Census Bureau reports an 8,800 seasonally adjusted

decline in auto and light truck sales from January and that Tuesday's CPI report

showed a 0.2% slip in new and used vehicle prices month/month, retail sales

motor vehicles should post another sizeable decline. Further, as CPI data

indicates an end to the elevated demand and prices from hurricane recovery, it

is likely that retail sales will experience a similar slowdown.

--GASOLINE STATIONS MAY FOLLOW CPI GASOLINE'S DECLINE

     Interestingly, analysts are divided on expectations for gas station sales,

with some expecting the measure to post continued strength after a 1.6% rise

last month. However, another solid post is seemingly unlikely given Tuesday's

CPI report shows a 0.9% decline in gasoline prices. There is a strong

correlation between CPI's gasoline month/month percent changes and gas station

month/month percent changes, supporting the view that gasoline stations will

fall. This could create a large downside surprise for analysts that have

incorporated a strong print into their headline and ex-auto estimates. 

--POTENTIAL SOURCES OF STRENGTH

     With energy and gas station sales both potentially dragging retail sales,

it raises the question where analysts see strength coming from. There could be

potential for consumer spending to have risen across the board as gains are

expected to come from tax cuts. February represents the first month of smaller

paycheck deductions under the new law. Additionally, clothing and accessory

stores could post another strong print, following January's 1.2% spike - as the

CPI report showed yet another strong, but unexpected increase in prices for

apparel. Further, some analysts look for building materials to bounce back after

it plunged last month, as there has continued to be a shortage for supplies

catalogued in other data prints. However, if these sources of strength fail to

offset declines, and retail sales posts another significant downside miss,

Treasury yields are likely to decline, futures curves bull flattening as markets

expect more tempered rate hikes after March's FOMC meeting, where a 25bp hike is

already priced in.

--MNI Washington Bureau; +1 202-371-2121; email: holly.stokes@marketnews.com

--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com

[TOPICS: MAUDS$,M$U$$$]