Disappointing US retail sales fly in the face of improving fundamentals‏

12th June 2014


The latest US retail figures have taken some of the shine off the more positive numbers emerging from the world’s largest economy suggesting that it is not quite yet out of the woods.

May’s disappointing 0.3% month-on-month rise in US retail sales versus a consensus estimate of 0.6% implies that some of the weakness in the first three months of the year has spilled into the second.

However with payrolls now rising by more than 200,000 a month, this is unlikely to last asserted Paul Dales, senior US economist at Capital Economics.

On Friday 6 June, new official numbers were published showing a higher-than-forecast 217,000 increase in non-farm payrolls in the US during May, with the increase widespread across a number of industries including construction, manufacturing, leisure & hospitality and trade & transport.

The US’s S&P 500 hit new highs following the update as traders cheered the signs that the US economic engine was getting back on track after progress ground to a halt in the first quarter when GDP fell 0.1%, as a result of the severe winter weather.

Commenting on the retail figures, Dale said: “The numbers seem odd at a time when employment is rising rapidly, credit is flowing freely and household wealth is being boosted by record high equity prices and rapidly rising house prices.”

Dale highlighted that while some of the blow from the smaller-than-expected rise in sales is offset by upward revisions to April’s data, where sales are now thought to have increased by 0.5% in April, up from the initial estimate of a 0.1% rise, the breakdown of May’s figures “offers no such consolation”.

He says: “In fact, things look worse once we take out the more erratic components of autos (+1.4% m/m), building materials (+1.1%) and gasoline stations (+0.4%). Excluding those items, sales didn’t rise at all.”

A more detailed look at the breakdown of May’s data reveals further cause for concern, as sales were particularly weak in discretionary areas. Department store sales fell by 1.4% month-on-month, clothing sales declined by 0.6% and electronic sales dropped by 0.3%. “That said, the falls in department stores sales and clothing sales both followed large rises in each of the previous two months,” added Dale.

But overall the Dale is optimistic that it will not be long before sales start rising more rapidly given that the fundamentals suggest that the US economy remains healthy and experts at Capital Economics expect that US GDP growth will average a robust 3% at an annualised pace over the remainder of this year and in 2015.

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