The most important piece of economic data from the United States ahead of today’s Fed decision and economic projections was released yesterday. The Retail Sales, expressed as monthly data, dropped in February by 3%, to the surprise of many.
Unsurprisingly, the release did not create much of fuzz on financial markets, as traders prefer to focus on the bigger picture – e.g., waiting for the Fed before making a bet on the future direction of both monetary policy and the economic performance. Yet, the data was not that bad as the headline suggests.
Here is why.
January Retail Sales Data Revised Higher
The U.S. Retail Sales indicator shows a drop for the month of February of -3%, but the negative headline is offset by the upward revision of the January data. Retail sales in January were revised upward to +7.6% from 5.9%, offsetting a large part of February’s drop. Moreover, the control group was revised from 6% to 8.7% – almost making up for the entire drop in February.
Another positive factor to consider is the terrible weather seen in the United States for the month of February that took its toll on the retail sales data. As such, one should not read too much into the February data and focus on the bigger picture – better health conditions and fiscal stimulus ahead, excess savings rates increasingly large, summer season coming in the Northern hemisphere.
Savings rates are elevated not only in the United States, but all over the world in the advanced economies. The chart above shows a comparison between major economies, with the U.K., Canada, and the U.S., leading. While the data refers to Q2 2020, not much changed in the meantime.
The point here is that there is a lot of money held by households around the world, ready to be deployed into the global economy. The tourism industry, for example, is the one industry that suffered the most during the pandemic. On better health conditions ahead and warmer weather, much of the extra savings is likely to be spent in the coming months. Hence, no matter how you put it, retail sales are poised to rise further, not only in the United States but all over the developed world.
Whenever that happened in the past, the global economic growth exceeded the projected levels. Will 2021 differ?