Optimism about the strength of US consumer spending took a knock on Friday as retail sales for July fell well short of expectations.
Headline retail sales were unchanged on the month, falling short of the 0.4 per cent rise that had been predicted by analysts. Adding to signs of a summer lull, producer prices dropped the most in 10 months, declining by 0.4 per cent in July from the prior month, according to the Bureau of Labor Statistics. That was also shy of expectations and pointed to benign inflationary pressures.
The numbers will leave intact expectations that the Federal Reserve is set to leave short-term interest rates unchanged at its September meeting. The chances of rates staying on hold on September 21st are just under 90 per cent, according to a CME Group analysis of futures trading.
Top Fed policymakers have not been priming markets for a near-term move. Jerome Powell, a governor at the Federal Reserve Board, said last week that with inflation hovering below the Fed’s 2 per cent target, “I think we can be patient.”
Cautious
His cautious comments followed a speech from Bill Dudley, president of the New York Fed, who recently said policymakers should be more wary of tightening policy too soon than of moving too late. Further signals are likely to emerge from the Fed later this month when officials convene at Jackson Hole, Wyoming for the Kansas City Fed’s annual symposium on economic policy.
The retail sales report was not all gloom, however – vehicle sales rose by 1.1 per cent on the month, while non-store retail sales were up 1.3 per cent. The numbers follow several months of firm retail sales, so they do not suggest US consumers are dramatically pulling back spending.
The outcome was affected by a drag from sales at petrol stations as gasoline prices fell, as well as hefty discounting, said Diane Swonk of DS Economics.
Mickey Levy, an economist at Berenberg Capital Markets, argued that the medium-term outlook for private consumption remains strong, pointing to firm growth in consumer credit and a fall in the personal saving rate during the second quarter which he argued was indicative of greater confidence among households in their personal finances.
“The rally in equity prices should also support consumer spending on discretionary items going forward,” he said.
– (Copyright The Financial Times Limited 2016)
