Is the US economy doing well? The market is closely watching this data tonight.

Retail consumption is one of the largest "engines" of the US economy, but this sector is now facing challenges.

The US retail data for September will be released tonight, and it is widely expected that the overall growth rate of this data will significantly slow down, from a MoM growth rate of 0.6% last month to 0.3%.

Strong retail data has been an important driver of economic growth in the US this year, but under the long-term high-interest rate environment led by the Federal Reserve, the pressure on this driver is also increasing.

If the retail data is much stronger than expected, it may trigger market concerns about inflation rebounding and the Federal Reserve maintaining high interest rates for a longer period of time.

On the other hand, if the data is weak, it may rekindle concerns about an economic recession in the US.

Previously released data has already indicated a sharp slowdown in consumption: The actual GDP growth rate in the US for the second quarter has slightly slowed down, with personal consumption contributing only 0.55% to GDP change, more than halving from the revised 1.14% and significantly dropping from the 2.54% in the first quarter.

Analysts point out that for the US economy, which is driven by 70% consumption, the most important thing is consumer spending, and a slowdown in consumer spending may cause the US economy to "suddenly collapse."

Investors have already expressed concerns about this category through their actions, as consumer stocks in the US stock market have fallen.

Currently, the S&P 500 index has fallen 4.7% from its high point this year on July 31, while the S&P Retail ETF, which includes 78 department stores and other retailers, has fallen 11% since then and has dropped more than 18% from its peak this year.

Data from EPFR shows that consumer sector funds have experienced net outflows for 10 out of the past 12 weeks, with outflows exceeding $1 billion in the past three weeks, a threshold that has not been broken since March 2022.

At the same time, the data provider stated that US fund managers have been reducing their exposure to the consumer industry since April.

Outlook: Sharp Decline in Credit Card Spending

Major banks such as Citigroup, Barclays, and JPMorgan have already issued warnings about the weakness in retail.

Citigroup analyst Paul Lejuez pointed out in a report last week that credit card spending in the 16 industries tracked by the bank declined by 10.8% in September, surpassing the decline of 10.2% in August and being the weakest month so far this year.

The data for the first week of October is even worse, with total credit card spending declining by 11.9%, surpassing the -10% during the most severe period of the pandemic in April 2020.Barclays' credit card data also points to this view - credit card spending has plummeted and is significantly weaker than before.

The bank warns that this indicates weak retail sales data for September.

Morgan Stanley consumer trader Brian Heavey warned of the shrinkage of retail/non-essential goods in late September, stating that "the sentiment of American consumers has become very negative":

Sentiment in the retail/non-essential goods sector quickly turned very negative (retail, casual dining, casinos, etc., all showing weakness). What is driving it?

While the continued surge in oil prices has received the most attention, we have also heard that as the impact of the "back-to-school" season gradually diminishes (which drove much of the optimism among management in August), the data for the entire market has started to decline, and people are beginning to refocus on the various adverse factors facing consumers: the long-term impact of inflation/interest rate hikes, student debt repayment, and consumer savings depletion.

Investors and analysts say that rising gasoline prices, tightening credit conditions, and intensifying inflation are starting to affect many consumers.

The consecutive two-month decline in the US Consumer Confidence Index highlights Americans' increasing concerns about their financial and economic health.

Analysts point out that after the outbreak of the pandemic, the government's massive fiscal support, as well as the cash savings forced during the lockdown, have helped Americans accumulate additional cash reserves. Their spending power has driven rapid economic recovery and enabled the economy to withstand the year-long interest rate storm, avoiding the recession that many had anticipated.However, now, as household cash reserves approach depletion, some analysts warn that an economic recession is still possible. The Federal Reserve Bank of San Francisco estimates that additional savings are likely to be exhausted in the current quarter.