US OUTLOOK/OPINION: Analysts See Control Group Picking Up M/M In May (2/2)
As usual we expect the GDP-input Control Group sales to be the most closely watched part of the retail sales release - many analysts are centered around a 0.3% M/M (SA) advance in May's report. That would be an improvement from -0.18% but would still see the quarterly rate (3M/3M SAAR) pull back to a 13-month low 3.4%, after 4.5% in April, albeit those are both in nominal terms.
- A few comments by analysts, in alphabetical order:
- BofA (Control Group 0.0%): "Still in limbo...we forecast flat readings on both retail sales ex-autos and the control group"
- Citi: "We expect total retail sales to decline by 0.6%MoM mainly due to auto sales normalizing after some front loading in March and April. Control group sales should hold up better with strength driven narrowly by nonstore sales...A combination of trade-related uncertainty and pay-back from front-loaded activity should lead to softer economic conditions in coming months."
- Deutsche (Control Group +0.3%): Headline sales (-1.0%) should be pulled down by the drop in unit motor vehicle sales last month, while ex-autos (Unch) will likely see a drag from gasoline prices. However, we expect retail control (+0.3%) to rebound. As always, it will be important to pay attention to revisions."
- NatWest (Control Group +0.3%): "We expect (nominal) retail sales likely fell by -1.0% in May..we expect weakness in auto sales and gasoline station receipts weighed... In contrast, core retail sales which exclude autos and gas, likely rose by 0.3%m/m in May... we suspect retail sales in line with our forecasts are likely to translate into a small positive increase in real spending for May. This would put quarter-to-date (through May) average up at a strong 3.0%q/q, ar pace versus Q1 average (though slightly lower than the 3.7%q/q, ar pace at end of April)."
- TD (Control Group +0.3%): "Contracting auto sales will weigh on total US retail sales in May despite our expectation for a 0.3% m/m rebound in the control group segment. Auto sales are in the process of normalization following the front-loading of spending that lifted the series in March and April. Food services spending (bars & restaurants) likely also fell as well following firm increases in the last two reports."
- UBS (Control Group +0.3%): "We expect retail and food services sales fell 0.2% in May, with the headline held back by weaker auto sales...Ex-autos should look better, up 0.2% in May, with a similar 0.2% increase for ex-autos and ex-sales at gasoline stations...looking at the seasonal patterns in recent years, we have tended to see relative strength in control group sales in the month of May. However, this year the risks are more two sided."
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RATINGS: Moody's Downgrades US's AAA Rating As Deficits Seen Ballooning
Moody's has downgraded the US's long-term credit rating to Aa1 trom Aaa. The move may not have been fully expected today. But it was the last holdout among they S&P and Fitch to demote the USA from the top rating, and they placed negative outlook on the US last year (now stable). Fiscal deterioration, both past and anticipated as Congress wrangles with the Republican fiscal bill, is cited as the key factor. From the release (link):
- “While we recognize the US’ significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics."
- "This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns...We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration."
- "If the 2017 Tax Cuts and Jobs Act is extended, which is our base case, it will add around $4 trillion to the federal fiscal primary (excluding interest payments) deficit over the next decade. As a result, we expect federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation."
- "We anticipate that the federal debt burden will rise to about 134% of GDP by 2035, compared to 98% in 2024."
- "Federal interest payments are likely to absorb around 30% of revenue by 2035, up from about 18% in 2024 and 9% in 2021. The US general government interest burden, which takes into account federal, state and local debt, absorbed 12% of revenue in 2024, compared to 1.6% for Aaa-rated sovereigns."
US FISCAL: "Extraordinary Measures" Continue To Dwindle Amid Debt Impasse
The "extraordinary measures" available to Treasury to stave off a debt default were down to $82B as of May 14, per a Treasury Department release today.
- That compares unfavorably with a high of $335B in January when the debt limit impasse began. Combined with $562B in Treasury cash on hand, though, after April's large tax intakes, that makes for around $644B in available resources before the "x-date" is reached.
- Resources are gradually being eroded since reaching nearly $800B in mid-April.
- Per Tsy Sec Bessent's letter to Congress last week, "after reviewing receipts from the recent April tax filing season, there is a reasonable probability that the federal government's cash and extraordinary measures will be exhausted in August while Congress is scheduled to be in recess. Therefore, I respectfully urge Congress to increase or suspend the debt limit by mid-July, before its scheduled break, to protect the full faith and credit of the United States."
CANADA DATA: Sales Activity Points To Potential Marking Up Of GDP Ests
There was mixed news on the housing and wholesale/manufacturing sales fronts this week, which on net look to slightly upwardly bias Q1 GDP estimates, pending next week's retail sales reading.
Housing starts blew through expectations at 278.6k in April (226.2k expected, 214.2k prior). This came after building permits fell a worse-than-expected 4.1% M/M in March as reported Wednesday.
- Meanwhile, he Canadian Real Estate Association reported existing home says April sales unexpectedly contracted -0.1% M/M (+1.0% expected, -4.8% prior). Sales are now down 9.8% Y/Y, while prices fell 1.2% M/M (3.6% Y/Y on the price index). (Link)
- Overall, confidence appears subdued, which is likely to translate into subdued activity.
On the sales front, March data was soft but positive versus expectations and could add a slight upward drift to Q1 GDP expectations.
- Manufacturing sales were less negative than expected at -1.4% M/M (-1.9% expected/flash estimate, -0.2% prior rev up 0.4pp). The decline was led by primary metals -6.5%, an area hit by U.S. tariffs, and oil -4.2%. Overall Q1 factory sales grew +1.6% vs prior +1.1%.(Link)
- Wholesales ex-petroleum and grains rose 0.2% in March, vs the advance estimate / consensus -0.3%. Sales volumes fell 0.3%. Overall Q1 wholesales rose 2.5%, led by machinery/equipment and autos/parts.
