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American Consumers Stay Home

Posted by Joseph Trevisani on Nov 13, 2015 7:27:15 PM

Retail sales were weaker than forecast in October as declines in automobiles, electronics, food and beverages and general merchandise suggested that the slowdown in consumer spending is widespread and could carry over into the important holiday shopping season. 

Consumer spending edged up just 0.1 percent last month and September's 0.1 percent gain was revised to flat, according to the Commerce Department in Washington on Friday. Economists in the Bloomberg survey had predicted a 0.3 percent increase. 

Sales excluding automobile purchases rose 0.2 percent, half the prediction and September's result was adjusted down to -0.4 percent from -0.3 percent.  

Auto dealerships reported a 0.5 percent drop in October sales, after a 1.4 percent gain in September though the decline contrasts with manufactures reports of strong October sales. 

Core retail sales that exclude automobiles, gasoline, building materials and food services climbed 0.2 percent, half the forecast. September's sales were revised up to 0.1 percent from -0.1 percent. This so-called retail sales control group mimics the consumption component of the government's GDP calculation. 

The disappointing sales numbers contradicted many analysts’ expectations that the strong payroll numbers over the past year, combined with savings from cheaper gasoline would translate into higher consumer spending. 

Annual sales did not fare much better in October. Headline purchases rose 1.7 percent on the year, down from 2.2 percent in September and the lowest increase since April. Sales without autos gained just 0.5 percent in the 12 months to October. Except for April's 0.1 percent annual increase that was the lowest annual gain in seven years. Core sales declined to 2.9 percent form 3.2 percent in September. 

Retail sales figures are nominal, that is, they are not corrected for inflation and consequently the actual sales are lower and the losses greater by the factor of the prices changes on the sales volume for the month. 

Retail sales also were restrained by a 0.9 percent drop in the value of sales at service stations in October, primarily due to lower gasoline prices. Service station receipts fell 4.0 percent in September.

The Federal Reserve is still expected raise the Fed Funds rate 0.25 percent for the first time in eight years in December.  Reserve Chair Janet Yellen and New York Fed President William Dudley have repeatedly stated that if the economy continues to perform as they expect a December rate ice is "a live possibility". October's strong employment report is no doubt what they had in mind, the retail sales information is not, though by itself it is probably not enough to derail the increase. The U.S. central bank has kept its main benchmark interest rate at 0.25 percent since December 2008.

U.S. economic growth slowed to a 1.5 percent annual pace in the third quarter from 3.9 percent in the second.  An overhang of unsold inventory and a steep decline in energy investment and production brought on by the collapse in oil prices reduced economic activity.

Retail sales also were held back by a 0.9 percent drop in the value of sales at service stations, which reflected lower gasoline prices. Service station receipts fell 4.0 percent in September.

Clothing store sales were unchanged last month. Receipts at building materials and garden equipment stores increased 0.9 percent, while sales at furniture stores rose 0.4 percent.

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Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

 

 

 

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