US Retail Rebound

Market Trends - 11/06/2015

Retail sales figures for the United States released just minutes ago pointed to the rebound in spending that every sell-side analyst and FOMC member has been awaiting for months. Today’s tantalizing number might be another box to tick off on the Federal Reserve’s list of important variables in determining the future of interest rate policy. However, generally speaking, despite the gains in personal income and the savings rate, it is important to remember that most of the spending gains are not coming from the bottom 80% of wage earners but rather the top 20% which comprises mainly managerial employees. Core retail sales rose sharply over the prior figure, expanding at 1.00% versus 0.10% prior while the regular figure rose 1.20% versus 0.20% prior. Much of the gains were attributed to rising prices as gas pumps considering the recent rally in crude oil prices and seasonal demand factors that contribute to higher margins charged by refineries.

Looking at an annualized basis, the biggest drivers of growth in retail spending has been automotive and food service consumption. However, gains in the first are suspect considering the growing subprime automobile bubble. The kneejerk reaction across markets was a weaker dollar while equities have given up part of their earlier gains. This movement in the dollar has contributed to strengthening of precious metals prices while equity benchmarks fearing the optimistic retail sales contribution might be the uptick in data the Federal Reserve needs to see to start raising interest rates, retreated before resuming the trend higher. While still too early to tell if the Federal Reserve will raise interest rates in this month’s FOMC Meeting, it does increase the probability that September will see a pivot in strategy and policy. The market has since readjusted, reversing most of the earlier move, but it remains to be seen how exactly the Fed weighs this latest uptick in real economic data.


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