The Daily Update - Retail sales / demographics

Yesterday the retail sales in the US disappointed when the figure for February came in at -0.1% for the month. This is the third month running that sales figures have been negative, below market expectations. If we delve down into the composition of the sales you can see that the underlying weakness was across the board. The worst performing sectors being department stores, furniture and furnishings, plus general merchandise. There were some sectors that came in on the plus side, with sporting goods, hobbies and building materials performing.

With the disappointing retail sales, eyes will now be on inflation. As we have written before, we believe that inflation globally faces headwinds. Even with the pickup in global growth and ongoing QE, inflation is still struggling to get to central banks goal. One area that is not looking very good for the US is demographics.  Since 2009 the population of the US had grown by just 0.76%, more than 20% slower than it did in the decade leading up to 2008.

There have been many studies about the correlation between changing demographics and the effect it has on a country’s inflation and GDP. In a report publish in late 2016, the US Federal Reserve came to the following conclusion about the ageing population of several OECD countries. It stated ‘This note has evaluated the effects of demographic changes on economic growth performance of OECD countries and found that demographic changes account for a significant portion of growth slowdown in several of these economies in recent years. Predictions of the model using population projections by age group also suggest that demographics factors will continue to restrain GDP growth for a few years at least in most cases.’

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