Even as volatility around the globe has soared in many cases to record levels (see China), one of the reasons why the S&P has desperately defended the 200 DMA with US stocks vol barely budging from multi year lows is that pundits, for some inexplicable reason project that Q2 earnings season will be good. It won’t be.
But even if one presumes that non-GAAP EPS fail to pull an Alcoa and add back hundreds of billions in restructuring charges to the “earnings” bottom line, there is one last wild card: the US economy is doing well, the same pundits say, pushed forward by the resilient US consumer. There is a problem with that too.
After staging another dramatic slump early in the year, which was once again blamed on snow to offset what was supposed to have been an “unambiguously good” for US spending gas price slump, retail sales finally picked up in May, laying out hope that the June print and onward, would be “good enough” to suggest that the US economy is recovering, some 6 years after the “recession ended” mind you, and is on track for a Fed rate hike.
Unfortunately that ointment just got its own particular fly when moments ago Bank of America’s internal card data revealed that after rising for 3 consecutive months, retail spending ex autos just posted its first monthly drop, declining -0.1% from May.
Based on BAC internal data, which tracks aggregate spending on credit and debit cards, retail sales ex-autos declined 0.1% mom in June on a seasonally adjusted basis. This follows a strong 0.8% gain in May.
Obviously since the data did not conform to the traditional narrative, BofA promptly had to “ask if there is anything unusual in the data that may affect the monthly figures.” And since BofA can not blame snow in the summer, it said that “one possibility is spending may have been held back by the extended school year. Due to school closings during the winter, some districts extended the school year, thereby postponing summer vacations.”
There is also the far more likely possibility that the US consumer – that 70% of marginal source of US GDP – is, despite all the propaganda, actually barely holding on. We give credit to BofA for at least considering this option:
“It is hard to prove if such a distortion exists. Therefore, we are left to conclude that the BAC internal data painted a disappointing picture of the consumer in June, especially considering our forecast for a stronger consumer in the second half of the year.”
And while one can ignore BofA’s commentary, it is worth noting that its spending card data is a very good immediate leading indicator to what official US seasonally adjusted retail sales due in a few days reveals, a number which Janet Yellen almost certainly already has ahead of her speech on the US economy in Cleveland today at 12:30 pm. A speech which will have a far greater impact on the US market than this week’s backward looking FOMC minutes as it reveals the Fed’s current thinking. Which, for all intents and purposes, surely means that the first rate hike, first due last month, has now been pushed back to 2016… or rather we should say “indefinitely.”