Falling US Retail Sales Could Be a Major Headwind for 2Q17 GDP

According to data provided by the US Census Bureau, US retail (XRT) sales fell 0.2% in June 2017, which was below the market’s expectations of a 0.1% rise. Retail sales fell 0.3% in May 2017. In the past three months, retail sales haven’t met market expectations.

Weaker retail sales in June were mainly due to lower sales in the home appliance, miscellaneous store, and gasoline station categories. Core retail sales, which most closely reflect the performance of the GDP’s consumer spending segment, also fell nearly 0.2% in June 2017.

Weak retail sales are a major headwind for US economic growth (QQQ) (SPY). The falling retail sales in the last two months could hamper economic growth in 2Q17. Improving retail sales indicate that consumer activity is improving and suggest increased revenue growth for businesses (IWM) (SPXL).

According to Mike Wilson, chief equity strategist at Morgan Stanley, retail sales are a major driver for the S&P 500 Index. He believes retail sales could post strong gains in the next six to seven quarters. He thinks that stronger growth in retail sales and earnings growth could drive the S&P 500 Index to 2,700 in the next 12 months.

In the next part of this series, we’ll analyze the Eurozone Sentix Investor Confidence Index in July 2017.