Trend in US consumer spending to continue higher - DB

FXStreet (Bali) - Despite the major disappointment in US December retail sales, Economist at Deutsche Bank expect the underlying trend in nominal consumer spending to continue to edge higher.

Key Quotes

"US December retail sales were much softer than expected. The headline was down -0.9%, while ex autos fell -1.0%. Retail control, which excludes automobiles, building materials and gasoline and is an input into GDP, declined -0.4% in the month. Still, we estimate that consumption grew close to 4% last quarter in large part because of a rapid fall in inflation. For example, retail control grew 3.8% at an annualized rate last quarter. This compares to a 4.4% gain in Q3."

"However, with the headline consumer price index (CPI) estimated to have fallen -1.5% last quarter versus a 1.1% increase in Q3, inflation-adjusted retail control is estimated to have grown faster last quarter than in Q3: 5.3% versus. 3.3%. In fact, the projected gain in real retail control would match its Q1 2010 post-recession high. "

"While the consumption data will look better post inflation-adjustment, the underlying trend in nominal consumer spending is expected to continue to edge higher, notwithstanding December retail sales. This view is largely based on the strong job gains and improving income growth experienced over the past year. Perhaps, this is best captured in various measures of business and consumer confidence. Each series has turned markedly upward and is at a post-recession high. "