US retail sales have been trending up since late 2015. While there have been patches of weakness along the way, later months’ figures have rebounded to higher levels. After reaching an annual growth rate of 6.6% in July 2018, subsequent sales figures formed a downtrend which brought the annual rate below 2.0% by the end of the year. After a rebound in January, February’s figures may mark a return of this downtrend.
According to the latest “advance” numbers released by the US Census Bureau, total retail sales contracted by 0.2% in February, noticeably below the 0.3% increase which had been expected and a large fall from January’s revised figure of +0.7%. On an annual basis, the growth rate fell back to 2.2% after recording 2.8% in January after revisions.
The ISM’s manufacturing PMI report was released almost at the same time and thus the effect of the sales figures was hard to determine. However, by the end of the day, 2-year Treasury bond yields were 7bps higher at 2.33%, 10-year yields had gained 9bps to 2.50% and 30-year yields were 8bps higher at 2.89%. In terms of US monetary policy, according to federal funds futures contracts the probability of a rate change before the end of 2019 is quite high, unlike a month ago. Futures prices implied a 60% chance of a rate cut at the December meeting of the FOMC, down from 65% at the end of the previous day.