US retail sales increase modestly, consumer spending strong

Shoppers exiting a Target store during Black Friday shopping in the Brooklyn borough of New York November 24, 2017. — Reuters pic
Shoppers exiting a Target store during Black Friday shopping in the Brooklyn borough of New York November 24, 2017. — Reuters pic

WASHINGTON, Oct 16 — US retail sales barely rose in September as a rebound in motor vehicle purchases was offset by the biggest drop in spending at restaurants and bars in nearly two years.

But other details of the report from the Commerce Department yesterday were upbeat and suggested that consumer spending ended the third quarter with strong momentum, which should provide a boost to economic growth despite anticipated drags from and a struggling housing market.

“The net result still appears to be a fairly strong quarter for consumer spending growth,” said Jim O’Sullivan, chief US economist at High Frequency Economics in White Plains, New York.

Retail sales edged up 0.1 per cent last month after a similar gain in August. Economists polled by Reuters had forecast retail sales increasing 0.6 per cent in September.

Retail sales in September rose 4.7 per cent from a year ago.

Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.5 per cent last month after being unchanged in August. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Consumer spending, which accounts for more than two thirds of US economic activity, is being driven by a robust labour market, with the unemployment rate near a 49-year low of 3.7 per cent. Tight labour market conditions are gradually pushing up wage growth.

Consumption has also been supported by the Trump administration’s US$1.5 trillion (RM6.24 trillion) tax cut as well as higher savings. However, economists said the stimulus from the tax cuts was fading and many expected consumer spending to slow sharply in the fourth quarter.

Some also worried a recent sell-off had dented household wealth, which could hurt spending.

“We believe lower tax withholdings provided meaningful lift to consumer spending growth so far this year, but that the incremental support to growth from taxes should be fading,” said Michael Feroli, an economist at JPMorgan in New York.

“We look for a more meaningful deceleration (in consumer spending) in the fourth quarter.”

Solid economic growth

Economists are estimating that consumer spending grew at an annualised rate of about 3.5 per cent in the third quarter, which would be slightly below the 3.8 percent pace logged in the April-June period. Solid consumer spending should help to offset the impact on the economy from a widening trade deficit and persistent weakness in the housing market.

Growth estimates for the third quarter are above a 3.0 per cent rate. The economy grew at a 4.2 per cent pace in the second quarter. Growth prospects for the July-September quarter were bolstered by a second report from the Commerce Department yesterday showing business inventories rose 0.5 per cent in August after increasing 0.7 percent in July.

Inventory investment is expected to contribute to GDP growth after a liquidation of stocks sliced 1.17 percentage points from output in the April-June quarter.

Strong economic growth likely will keep the Federal Reserve on course to raise interest rates in December. The US hiked rates last month for the third time this year. Tightening monetary policy has roiled financial markets in recent days.

were trading lower yesterday. The was marginally weaker against a basket of currencies, while US Treasury yields rose.

Last month, surged 0.8 per cent after declining 0.5 per cent in August. Receipts at clothing stores rebounded 0.5 per cent after tumbling 2.8 per cent in August. Online and mail-order sales soared 1.1 per cent in September after rising 0.5 per cent in the prior month.

There were also strong increases in receipts at furniture, hobby, musical instrument and book stores as well as electronics and appliances outlets. But Americans cut back on spending at restaurants and bars, with sales dropping 1.8 per cent. That was the biggest decline since December 2016 and followed a 0.3 per cent rise in August.

While the Commerce Department said it was impossible to determine the impact of Hurricane Florence on the data, disruptions caused by the storm could have hurt sales at restaurants and bars last month.

“Retail sales for food services and drinking places may have been impacted by the hurricane in September, as consumer confidence remained solid during the month,” said Ellen Zentner, chief US economist at Morgan Stanley in New York.

Sales at building material stores nudged up 0.1 per cent in September. Receipts at service stations fell 0.8 per cent, likely reflecting a moderation in gasoline prices. — Reuters

Source: The Malay Mail Online

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