Last Friday, the U.S. reported that sales in the retail sector went up by 0.6% month-on-month in September, better than the 0.5% expected.
On the other hand, the core version of the report, which excludes “volatile” items such as automobiles and fuel, rose by 0.4%, right in line with forecasts.
1. How does this number compare to previous figures?
Compared to previous reports, the figures for September show… well, promise. While the increase in retail sales was less than the 0.7% increase in August (revised up from 0.4%), it is still growing.
In fact, the three-month average of sales for August stands 0.9% (annualized) higher thanthat of the preceding three-month period. Though admittedly not impressive, the trend indicates that retail sales are climbing.
2. What drove growth?
Ironically, driving did! Retail sales received a big boost from automobile sales, which rose 1.6% in September. And it seems that after buying their new sets of wheels, Americans set out for the open road. Gasoline stations reported that their sales picked up 0.4% last month. Did I just hear someone shout, “Road trip”?
With students fresh off summer vacation (boo!), back-to-school purchases climbed and also helped raise same-store sales 2.8% year-on-year, following up the 3.3% uptick in August.
Similarly, electronics sales showed a strong rebound from the 0.8% month-on-month decline in August to bounce up 1.4% in September. Techies gotta get the iPhone 4, baby!
3. Why is the retail sales report important?
Traders like to keep tabs on retail sales because it is the best measure of consumer spending. Being the forex geek that you are, I’m sure you already know that consumer spending contributes a great deal to overall economic activity and comprises a big part of GDP.
It’s quite simple, really. When people spend their money freely, retails sales pick up, giving businesses and the economy plenty of fuel to grow. Consequently, strong retail sales often signal a healthy economy.
4. What’s next for retail sales?
The holidays are upon us and we all know what this means… Snow! Oh, and a whole lotta Christmas shopping too!
If consumer spending in September was partly driven by back-to-school sales, purchases in the coming months could be boosted by seasonal spending once more. Recall that retail sales surged by an annualized 1.5% in November and December last year as Santa and his elves hit Macy’s and Bloomingdale’s for some last-minute gift-shopping.
However, once the seasonal effects fade, retail sales are expected to slump given the weaknesses in the labor market. Then again, if the Fed unveils more stimulus measures, it could provide support for consumer spending.
5. How will it affect the U.S. dollar?
Aside from contributing to roughly two-thirds of the GDP, strong retail sales usually indicate that consumers are very confident with their financial standing and economic outlook.
Because of that, another rise in retail sales could provide some assurance that the U.S. economy could still survive even without additional stimulus from the Fed. If this is enough to drown out speculations about further QE, then it could provide a boost for the U.S. dollar.
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