In a note to clients on Tuesday, Bank of America Merrill Lynch said a warmer-than-average month will negatively impact the October retail sales report.
We believe abnormal weather patterns may have biased retail ex-auto sales lower in October. There has been a late start to the winter this year: the average temperature in October was 57.4 degrees Fahrenheit, which is the highest since 1963 and above the historical average of 54.3 degrees. Intuitively, this would depress sales of cold weather apparel, such as coats, hats, boots, etc.
For the last few years, bad winter weather has been blamed for poor economic data during the first quarter. This has led to what feels like a ritualistic discussion about seasonal adjustments and the Bureau of Economic Analysis’ process for tweaking data to reflect actual underlying activity in the economy.
For the cynics, “the weather” is an excuse used by economists and commentators trying to hidethe “real story” that the economy is, in fact, much weaker than people think or the data says.
To optimists — or simply those who think economic data is important and reliable — “the weather” is messing with our ability to measure the economy and this is a problem the BEA needs to rectify.
And so overall, BAML expects a relatively downbeat October sales report to come through on Friday, with the firm’s internal credit card data pointing to a 0.3% month-on-month decline when excluding car sales (which would also bring the 3-month moving average to -0.3%).
The firm notes, however, that some of this softness reflects the decline in gas prices, as retail sales in a gross number that is negatively impacted by less total dollar spending on gas while most economists argue that this decrease in outlays on gas is a positive for spending overall.
Wall Street is expecting sales rose 0.4% excluding car sales in October after 0.3% decline in September.