US DATA PREVIEW: Aug Retail Expectations Vary Post-Harvey

By Holly Stokes and Sara Haire

HIGHLIGHTS: 

-Analysts vary in expectations for how soft retail will be, with net impact of

Harvey in question.

-Auto sales, slipping to its lowest level in three years, to be biggest drag to

retail. Hurricane damage to propel auto sales in months to come.

-Surge in gas prices to help offset auto drag and keep retail ex. auto at a

healthy 0.5% gain.

     WASHINGTON (MNI) - There is relative uncertainty for analysts trying to

forecast the change in August retail sales, with the median of a 0.1% gain

falling between the wide range of a 0.3% loss to a 0.7% gain, as seen in an MNI

survey. While the median forecast of a 0.1% gain would be moderate compared to

July's surge to 0.6%, analysts are more hopeful for retail sales ex. auto, with

a median forecast of another 0.5% gain, with the range spanning from a 0.3% to a

0.9% increase.

     While there is a general consensus that August retail sales should show

some reversal from July's high headline post, there is a considerable range in

forecasts - likely due to the uncertainty created by Hurricane Harvey. As

Amherst Pierpont notes, there is an expectation for Harvey to have lifted

purchases of food and building supplies, but also an understanding that there

would have been store closures and other disruptions. However, analysts remain

divided as to how large a net effect Harvey will have on August readings,

anticipating a larger shock in September, especially with Irma causing

additional disruption to the southeast. 

     Looming uncertainty hints at the difficulty analysts have in forecasting

retail sales, as is apparent in previous expectations. There have been

overestimates in five of the last 10 years, versus three underestimates and two

correct estimates. More recently, there have been three overestimates and two

underestimates in the last five years, prior to revisions. While some of those

misses have been offset by later revisions, it shows that analysts have

frequently been surprised by a weaker number.

     Auto sales are expected to be the biggest drag to retail sales, with unit

vehicle sales declining by 4.0% in August to its lowest level in three years.

While Harvey may have worsened sales, analysts agree that auto sales would have

been soft regardless. This drop is expected to hold back August retail growth,

however, autos will likely jump back up in September. In particular, Capital

Economics predicts that, at an estimated 300,000 damaged autos to replace from

Harvey alone, auto sales will likely be strong over the next few months.

     A surge in gas prices is expected to somewhat offset the drag in autos, and

keep retail ex. auto at a solid gain. Morgan Stanley, predicting the survey's

high for headline retail at +0.7%, claims that sales at gas stations and motor

vehicles should cancel each other out. While other analysts believe there will

still be a net auto drag, they remain hopeful that energy should provide a

needed boost. Societe Generale believes that seasonally adjusted gas prices may

have increased by 6.0%, and will carry over to gas stations as a 3.4% increase

in sales. Analysts' expectations for rising gas prices are largely supported by

Wednesday's PPI report that showed energy prices rising by 3.3%, and Thursday's

CPI report that showed gas prices increasing by 6.3%. Credit Suisse expects that

this surge in prices will have outpaced any possible declines in gas

consumptions. 

     Expectations for other components are relatively mixed. Societe Generale

forecasts strength in restaurants, purchases of building materials, non-store

retailers, and miscellaneous store sales, but expects soft readings for apparel,

sporting, and general merchandise. Credit Suisse also expects a gain for

non-store retailer sales, despite coming off of July's Amazon-prime boost. While

analysts such as Capital Economics expect a solid gain for retail ex. auto, gas,

and building materials (the control group) because of high consumer confidence,

CIBC cautions that it will likely suffer from closures as auto sales did. 

     Analysts are closely watching retail sales for an indication of 3Q GDP.

Capital Economics states that a 0.2% rise in nominal retail sales would still be

"consistent with consumption growth of close to 3.0%" for 3Q. In particular,

analysts attention remains on the control group, which comprises 30% of nominal

consumer spending and feeds directly into GDP. 

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

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