US Retail Sales to Rise Slower in June

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The US Commerce Department will be releasing the monthly retail sales report today. Economists forecast that retail sales rose 0.3% in June, on a month over month basis. This follows a revised 0.5% increase in May.

The modest expectations come as economists try to pencil in the current economic state. There has been speculation about a possible slowdown in the US economy. However, various data points remain mixed.

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Retail sales have grown for two consecutive months so far. A beat on the estimates could potentially see the second-quarter GDP expectations rising. The core retail sales, also known as the control group, are forecast to rise 0.4% on the month.

U.S. Retail Sales
U.S. Retail Sales, May 2019

Retail sales expanded for the second month in May, marking two consecutive months of gains. The numbers for April were also revised higher.  And the data for April and May underlined the uptick in consumer spending.

The retail sales data soothed concerns about a possible slowdown in the US economy. Investors will be looking to see how consumer spending fared in June. The data comes as the Federal Reserve is currently in the midst of deciding its monetary policy course.

Retail Sales Rise for 2nd Consecutive Month

Retail sales rose 0.5% in May, driven by increased spending on motor vehicles and other goods. On an annualized basis, retail sales grew 3.2%, comparing to the same period a year ago.

The numbers for April were revised to show a 0.3% increase against a drop of 0.2%.

The data for May was, however, slightly below estimates. This had investors speculating that the US GDP might have slowed during the second quarter of the year. Economists forecast that retail sales would rise 0.6% on the month.

Core retail sales which exclude automobiles, gasoline building and food services grew 0.4% on the month. This followed April’s revised numbers of a 0.4% increase. The core retail sales are seen to be closely corresponding with an increase in the GDP as well.

With consumer spending accounting for more than two-thirds of the GDP, the numbers for April and May were upbeat.

In Q1, retail sales grew quite a bit, and investors feared whether the pace of spending would continue into the second quarter. In Q2, retail sales have fallen from 3.8% in April to 2.9% in June year-on-year. Economists had expected a 3.4% raise, but that was short 50 basis points lower.

Auto dealership sales rebounded, rising 0.7% on the month in May. This followed April’s declines of 0.5%. The receipts at gasoline stations grew 0.3% in the month. Building materials edged modestly higher, rising 0.1%. Online sales and mail order purchases jumped 1.4% contributing to the gains.

The data for the two months raised the second-quarter GDP estimates. While initially, economists forecast a sub 2% GDP growth in the second quarter, this was revised higher. Based on the two-month retail sales report, economists now expect to see a higher than 2% GDP growth rate in the three months ending June.

Sales at auto dealerships accelerated 0.7% after dropping 0.5% in April. Receipts at service stations rose 0.3%.

Impact of June Report

Despite the upbeat figures, there were some underlying concerns. Exports had fallen in April alongside slowing inventory investment. Both manufacturing production and home sales also slowed during the period. These are likely to offset the gains in the retail sector when it comes to accounting for the third-quarter GDP.

Investors will be closely watching today’s retail sales report. The markets had initially speculated that the Fed would cut rates in July. However, the recent upbeat jobs report has dented the speculation on a larger rate cut.

Recent economic data is mixed, which further complicates the course for monetary policy. Fed officials seem to currently weigh the economic reports. This gives them a glimpse into how the US economy fared in the second quarter of the year.

A miss on the estimates will only see the markets raising their odds for a rate cut. However, if we get to see another monthly gain in retail sales, it could potentially lower the odds of a rate cut within the next two-three month horizon.

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