McQuaid Group: Further evidence that the US economy likely stumbled badly in the first quarter of 2016 emerged this week with a solid miss for March retail sales. According to the US Commerce Department, retail sales in March dipped by 0.3% against consensus forecasts for a 0.1% increase with most of the decline by virtue of low automobile sales.
The worse-than-expected data flies in the face of policymakers who continue to signal that the US economy is growing moderately. Markets shrugged off the news and gained sharply on the strength of reassuring economic data out of China that appeared to show the sharpest jump in the country’s exports for over a year.
Core retail sales – which excludes automobiles, gasoline, building materials and food services – gained slightly by 0.1%. Though these core retail sales are said to be most reflective of the contribution consumer spending makes to overall GDP, McQuaid Group’s senior economist Wade Homachi is unconvinced.
“Some commentators will be looking favorably at the core retail sales number and telling themselves that automobile sales aren’t that important when trying to gauge the economic outlook but for America, it is very important,” he said.
“We see less likelihood of more interest rate hikes in the face of declining retail sales especially when wholesale inventories and housing sales are in the doldrums too and, frankly, the bond markets are in agreement with us,” he added.
McQuaid Group says that, while offering little in the way of yield, it may be an opportune moment to buy some exposure to bonds. “We expect bond yields to drift lower which also means their prices will rise, certainly in the short term as it becomes more apparent that US monetary policy will likely get easier before it gets tighter,” explained Homachi.

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