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Dollar Gains on Strong Retail Sales

Posted by Joseph Trevisani on May 13, 2016 1:30:40 PM

Retail sales in April climbed the most in a year, a pace that if sustained, could go a long way to bringing the economy out of the doldrums of the last two quarters.

Purchases rose 1.3 percent, well ahead of the 0.8 percent median forecast and the biggest monthly jump since March 2015, reported the Census Bureau of the Commerce Department in Washington on Friday. 

The dollar gained against all but one of its major counterparts on the news as the stronger consumer sector revived chances that the Federal Reserve could resume its rate hike cycle at the June 15th meeting, as several Fed governors have hinted.  

The euro began slipping just before the 8:30 am release and within an hour has shed 50 points to 1.1299 then dropped as low as 1.1282 before recovering to 1.1300.  The dollar/yen also began to move before the release and rose from 108.81 as high as 109.56, the strongest the greenback has been against him Japanese currency since April 28th, before retreating to 109.19 at 11:43 am. Treasuries fell and oil pulled back from yesterday’s six month high of $47.02. 

April's sales were a remarkable turnaround from the first quarter when purchases declined an average of 0.16 percent each month and the second half of last year when they rose an anemic 0.22 percent a month. 

Retail sales is a volatile series with many instances of robust growth one month followed by weak or non-existent growth the next.  In the past four years there has only been one pair of back to back 1 percent gains in sales, February and March 2014.

Annual sales also rose sharply to 3.0 percent in April from 1.7 percent in March. That was the second lowest yearly gain in just over six years, only last November's 1.6 percent post was smaller. 

Consumer may be feeling more energetic as wages have improved. Average hourly earning over the past two quarters have averaged a 2.5 percent year over year gain, their best performance since the financial crisis and recession.  

Households began conserving first. The saving rate has gone up to 5.23 percent of disposable income in the first quarter, the highest in over three years. 

Sales in eleven of 13 major retail categories rose. Auto sales were the best in a year and on-line merchants saw their strongest numbers in two.

Sales excluding automobiles gained 0.8 percent, almost twice the 0.5 percent forecast and the March result doubled to 0.4 percent upon revision.

Purchases without autos and gasoline added 0.6 percent in April, double the estimate and the prior month was revised to 0.2 percent from 0.1 percent.  

A small portion of the overall sales increase was due to the rise in gasoline prices. Retail sales figures are not corrected for price exchanges. The price of a gallon of regular fuel rose 7.6 percent in April

Core retail sales, the Commerce Department’s  'retail sales control group' the classification that is incorporated into the government’s gross domestic product calculation and is closely monitored for consumption trends in the economy, rose  0.9 percent in April more than twice  the 0.4 percent prediction. 

U.S. economic growth in the last two quarters averaged just 0.95 percent, 0.5 percent in the first quarter of this year and 1.4 percent in the final three month of 2015.

This weak and declining GDP had partially reflected the caution of the consumer in the last three quarters. Over the last nine months retail sales have added a paltry 0.1 percent each month. Business were forecast cut back on orders and reduce inventory that had risen to a ratio of 1.41 to sales in the face of weak consumer expenditures.

Today’s report prompted the Atlanta Fed to boost its estimate for second quarter GDP growth to 2.8 percent from 2.2 percent on May 10th citing the better than expected sales results.  

Consumption is now forecast to rise to a 2.6 percent annualized pace in the second quarter from its 1.9 percent pace in the first three months of the year.

But caution is advised. In the past 52 months there have been seven months were retail sales grew at 1.0 percent or better.  None led to a sustained positive trend in household expenditures.

 

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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