Special Report-US April retail sales expected to slow
Wednesday, May 12th, 2010US retail sales for April will be released on Friday May 14th. Retail sales are expected to have continued to rise in April but at a slower pace than last month. The Commerce Department reported that March retail sales rose by 1.6% and sales were 7.6% higher from a year ago. This marked the largest monthly increase in retail sales since last November. Most of the gain in March retail sales reflects strong auto sales, improving weather and demand for clothing. Major snow storms blanketed much of the US in February. Auto sales rose by 6.7%. Ex. autos retail sales rose by 0.6% compared to 1% in February. Improving weather and the Easter holiday boosted sales for clothing which rose by 2.3% and building materials and garden supplies rose by 3.1%. Sales of electronics and appliances dropped by 1.3% and gasoline receipts were lower.
The improvement in US retail sales suggests that the US economic recovery is gaining strength and consumers are more willing to spend. Consumer confidence and spending has been improving despite continued high unemployment. In April the US posted the biggest increase in nonfarm payrolls growth in four years. The April nonfarm payrolls report generates hope that the labor market is improving. If the labor market outlook continues to improve it should encourage more consumer spending. May Michigan consumer sentiment is due for release on May 14th and is expected to rise above 73.Improving consumer confidence and better jobs outlook suggest that that US retail sales will continue to post moderate gains. The recent increase consumer credit demand, the Greek debt crisis and the return volatility in equity markets may curb retail sales demand.
The increase in retail sales growth reflects renewed consumer credit expansion. March consumer credit was reported up 2bln, a 3.9bln decline was expected. Consumer credit has been rising over the last few months which suggest that consumer credit is stabilizing. The increase in March consumer credit reflects a sharp increase in revolving credit which includes auto loans. Auto sales account for much of the demand for retail sales and credit. Demand for autos has been partly fueled by government incentives. It is unclear whether demand for autos will remain high as the incentives lapse. The rise in consumer credit means that the consumers are not relying solely on savings to spend. This could be trouble if improvement in the labor market stalls .Borrowing to purchase goods during a period of high unemployment may not be sustainable. Additionally fallout from the Greek debt crisis and recent volatility in equity markets may have a chilling impact on consumer sentiment and spending.
April retail sales are expected to rise by 0.2% compared to an adjusted 1.6% rise in March. Ex. autos April retail sales are expected to rise by 0.4%. The slowdown in retail sales will likely reflect weaker auto sales, lower gasoline prices and weaker sales of clothing and electronics. Demand for building materials is expected to be positive. A slowing of retail sales in April may generate concern about the strength of the US recovery. Confidence in the recovery and improvement in the labor market have been major factors in the recent improvement in retail sales. A weak April retail report could dampen confidence in the recovery and the rebound in consumer spending may be fleeting. There can be no sustained recovery in retail sales without jobs creation. The April retail sales report may revive concern about the impact of high unemployment on consumer spending. If not the US may be returning to consumption and debt patterns that got us into the last financial crisis.
Written by Easy-Forex
