The Week Ahead in US: retail sales and U.Michigan consumer confidence Index

From our weekly Top Down Outlook

Trade Balance (Wednesday 10) – With consumer spending rebounding at the tail end of the year, we expect exports to increase more than imports in December, widening the trade balance deficit. Our estimate is for imports to increase by 2.6% to USD179.12bn and exports by 2% to USD141bn. Should our estimates prove correct, trade balance surplus may rise to USD38.1bn.

Retail Sales (Thursday 11) – Retail sales figure were highly volatile over the last few months, probably reflecting problems with adjusting data for seasonal issues. Retail sales rose by 1.2% m/m in October, by 1.8% in November, and fell by 0.3% m/m in December. Notwithstanding December’s decline, the underlying trend in retail sales remains solid, and we expect the sales’ climb to resume in January. We project retail sales to increase by 0.6% m/m in January (3.8% y/y), and by 0.9% m/m ex-auto (4.3% y/y). These figures would suggest that a consumer spending rebound is likely to continue in early 2010.

Michigan Sentiment Index (Friday 12) – The Michigan Sentiment Index rose to 74.4 in January, up from 72.5 in December. Given the broad sell-off in equity markets over the past few weeks, labor markets still bogged down, and notwithstanding signs of an emerging bottoming-out in the last few months, we do not pencil in a sizeable short-term improvement in consumer confidence. We expect the Michigan Sentiment Index to remain unchanged at 74 in February, remaining well below the long-term average (89.6), which indicates that consumer spending recovery may remain subdued.