Retail Sales Predicted to Exceed Expectations Based on Recent Card Spending Data

A Rare Miss in Bank of America's Retail Sales Forecast

Last month marked a rare instance in which the Bank of America's retail sales forecast, which is typically accurate and is based on real-time debit and credit card spending, was incorrect. The bank had predicted a small increase, but the actual figure was a significant miss, remaining unchanged on consensus estimates of a 0.4% increase. Furthermore, the control group unexpectedly shrunk by a substantial 0.3%.

Will Bank of America's Forecast Be Wrong Again?

It's doubtful that Bank of America's optimistic forecast will be wrong for a second consecutive month. After all, the bank's methodology has proven to be remarkably accurate. According to the bank, total card spending per household, as measured by aggregated credit and debit cards, increased by 0.7% year-over-year in May, despite a 0.9% decrease month-over-month on a seasonally adjusted basis. This follows a 1.3% increase in card spending per household in April and a 0.7% decrease in March. The bank attributes these significant fluctuations to the lingering effects of this year’s unusually early Easter weekend.

The Impact of Seasonal Distortions

As BofA economist Aditya Bhave explains, seasonal distortions have influenced retail sales in four of the past five months. BAC card spending is typically low on Easter Sunday, which usually falls in April. However, this year it was on March 31, and it seems that the bank's seasonal factors did not fully account for this shift. This resulted in lower seasonally adjusted spending levels in March and increased levels in April. Consequently, seasonally adjusted spending growth in May appears to be soft due to an unfavorable base effect.

A Gamble on Tomorrow's Official Print

Another month where the underlying reality will be distorted by seasonal adjustments, and since it is unclear in what direction the Biden Census Bureau will seek to nudge the numbers, a prediction of tomorrow's official print tomorrow could be a gamble.

BofA's Forecast Despite Uncertainties

Despite these uncertainties, BofA has made a forecast. The bank notes that the Census Bureau’s seasonal factors appear to have leaned strongly the other way: retail sales were very strong in March and soft in April. As a result, the bank attempted to resolve the discrepancy between its own seasonal factors and those of the Census. This results in forecasts of 0.3% and 0.6% growth in retail sales ex-autos and the core control group, respectively, in May.

Government's Retail Sales Data Subject to Significant Revisions

Another variable to consider is that the government's retail sales data have been subject to significant revisions this year, both to the upside and the downside. BofA notes that this trend could continue, particularly to the downside. Revisions to retail sales for prior months could impact the month-over-month growth rate for May.

Regional Spending Trends

Another observation from BofA: in 2019, card spending accelerated among Northeasterners around Memorial Day, but slowed among residents of other regions. By contrast, there was no “Memorial Day bump” in any region last year. This year, Northeasterners raised their spending around Memorial Day again, although not to the same degree as in 2019. This may suggest that the region continues to regain its economic vibrancy. Meanwhile, residents of other regions saw less of a spending drop than in 2019.

Discretionary Spending Remains Unchanged

One final point: after enjoying a big jump from pre-covid levels to the post-covid reality, discretionary spending as a percentage of total is effectively unchanged in the past year.

Wrapping Up

As we can see, predicting retail sales can be a complex process, influenced by a myriad of factors, including seasonal adjustments and regional spending trends. What are your thoughts on these predictions and the methods used to arrive at them? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.