US retail sales recap: Recession, Reschmession

KEY TAKEAWAYS:

• Retail sales rose by 3% m/m in January, beating expectations of a 1.9% gain
• The gains were led by sales increases in food service, motor vehicles, and furniture sales
• The US dollar is adding to today’s gains as a result, making it the strongest major currency on the day.

US retail sales recap

The previously omnipresent calls for a 2023 recession in the US are looking more and more wrong by the day.

The latest strong reading on the US economy comes from the US retail sales report, which rose by 3.0% m/m in January, handily beating expectations for a 1.9% gain. The core (ex-autos) retail sales report also beat expectations comfortably, showing a 2.3% gain vs. 0.9% eyed, according to the Commerce Department.

Digging into the individual components, the strongest growth came from food service retailers (+7.2%), motor vehicle dealers (+5.9%), and furniture stores (+4.4%); Online retailers saw a 1.3% bump in sales. Notably, the rise was broad based: no individual category saw declining sales in January as US consumers opened their wallets liberally after a 1.1% decline in December retail sales.

The retail sales report comes on the back of stronger-than-expected data out of the jobs market and yesterday’s higher-than-expected inflation print, signalling that the US economy may be, if anything, accelerating as we move through the first quarter of the year, confounding expectations for a slowdown amidst higher interest rates from the Federal Reserve.

US dollar chart – Dollar Index (DXY) technical analysis

The US dollar is the strongest major currency on the day, with the US dollar index (DXY) gaining nearly 0.7%. As the chart below shows, the greenback is breaking above its 50-day EMA for the first time since early November, with a close near current levels potentially clearing the way for a continuation up to the year-to-date highs near 105.65 in the coming days.

Source: StoneX, TradingView

While we won’t necessarily return to the relentless rally we saw through the first three quarters of last year any time soon, continued strength in the US economy could prompt the Federal Reserve to raise interest rates well above 5% this year, and the greenback has room to run if traders start to price that scenario in.