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If you’re looking for a potential post-CPI catalyst for the Greenback, then heads up since the U.S. will be releasing its retail sales report this Friday at 1:30 pm GMT.

And if you need to get up to speed on what happened last time around, as well as  quick overview of what’s expected this time around, then today’s write-up will help you out.

What happened last time?

  • Headline reading m/m: +0.8% vs. +0.6% expected, +0.1% previous
  • Core reading m/m: +0.7% vs. +0.5% expected, -0.1% previous

The October retail sales report was better-than-expected since it printed a solid 0.8% month-on-month increase for the headline reading (+0.6% expected) and a 0.7% month-on-month increase (+0.5% expected) for the core reading.

And looking at the details of the retail sales report, 9 of the 13 major retail store types reported stronger readings in October compared to September, which is why the core reading also printed a strong recovery after reporting a 0.1% contraction back in September.

It is somewhat disappointing, though, that retail sales growth was driven mainly by the 1.1% increase sales by vehicles and parts dealers and the 3.5% increase in sales from gasoline stations. If those store types are excluded, then retail sales only increased by 0.3%.

But overall, the retail sales report was pretty good, so the Greenback tried to jump higher on most pairs. However, buying pressure was only limited, likely because the Greenback was under constant bearish pressure during the Nov. 12 – 16 trading week, thanks to fading trade-related jitters at the time, which eroded safe-haven demand for the Greenback.

Overlay of USD Pairs: 15-Minute Forex Chart
Overlay of USD Pairs: 15-Minute Forex Chart

What is expected this time?

  • Headline reading m/m: +0.1% expected vs. +0.8% previous
  • Core reading m/m: +0.2% expected vs. +0.7% previous

For the month of November, the general consensus among economists is that the headline value of retail sales increased by 0.1% month-on-month, which is much weaker compared to the 0.8% increase recorded in October.

And if vehicle sales are stripped to get the core reading, then the consensus is for a 0.2% increase, which is also weaker compared to October’s 0.7% increase.

Do note that the core reading is expected to print a stronger reading then the headline reading, which means that there’s an implied consensus that non-vehicle sales drove retail sales growth in November.

So, what do the available leading indicators have to say?

  • Looking at some of the available leading indicators, total vehicle sales in November increased by an annualized rate of 17.5 million, which is slightly weaker than the 17.6 million printed in October.
  • Markit’s November manufacturing PMI report noted that “The rise in new business was the quickest since May and was often linked to increased [domestic] client demand and new product launches.” Perhaps that will translate to stronger retail sales.
  • Next, ISM’s non-manufacturing PMI report noted that the retail trade industry continued to enjoy growth in November. However, one of the survey respondents was also quoted as saying that “The business is preparing for the later phases of tariffs by slowing down growth and capital investment until the future becomes clearer.”
  • Moving on, the November NFP report showed that the retail trade industry added 18.2K jobs.

How about historical tendencies? Do they offer additional insights?

If we compare the retail sales reading for October and November, we can see that the November reading tends to be stronger, which goes against the consensus that there will be a slowdown in growth.

Moreover, economists are apparently too pessimistic with their guesstimates for the November reading since there are more upside surprises over the years.

As for the core reading, the November reading has been historically stronger, but that historical tendency hasn’t been holding up too well in recent years.

With that said, economists still tend to undershoot their guesstimates, resulting in lots of upside surprises over the years.

To summarize, the consensus view is that both the headline and core retail sales readings will print weaker readings for the month of November.

The available leading indicators appear to be hinting at stronger retail sales growth in November, however, although it’s possible that vehicle sales was weaker, so the headline reading may be weaker compared to the core reading.

Also, historical data don’t really support the consensus view since the November readings (both headline and core) have historically been stronger.

Moreover, economists have a tendency to undershoot their guesstimates for both the headline and core readings, which has resulted in lots of upside surprises over the years and skews probability more towards potential upside surprises for both readings.

Do keep in mind that I’m talking about probabilities here, however, so there is always a chance that both readings may surprise to the downside instead.

Also, just keep in mind that if both readings miss expectations, then that usually (but not always) triggers a quick Greenback sell-off. On the flip side  a quick rally is usually triggered if both readings are better-than-expected. And if they come in mixed, then traders usually have their sights on the headline reading.

And as always, just remember that if news trading ain’t your thing, or if high volatility makes you uncomfortable, then you can always just opt to sit on the sidelines and wait for things to settle down.