US Retail Sales Down for Two Successive Months as Producer Prices and Oil Fall

The Dollar edged up this morning as data released by US trade authorities showed a broadly based bearish economic activity and does not support speculations that the Federal Reserve will be hawkish enough to pull the interest rates up at the end of the year.  

Retail Sales Defied Expectations

Contrary to expectations, the US Advance Retail Sales fell by 3 percent in August.  The figures showed two successive months of retail sales contraction.  Excluding sales of automobiles, the data is even worse as retail sales suffered -0.7 percent decline, a record low in eight months.  

Upon closer scrutiny of the index breakdown, consumer spending on almost all components of retail sales declined.  The drop was led by building materials, gasoline sales, and department stores.  

It should be noted however that the records does not include adjustments for inflation.  If this is included, the decline of the component in gasoline stations can be attributed to the continued reduction of world energy and oil prices in August rather than a decline in consumer demands.  

Consumption as Economic Driver

Consumption is still considered as the US economy’s redeeming indicator as the housing sector continue to reel from the crisis with no relief in sight.  Tight credit conditions and the rise in unemployment data are also dark spots in the entire US economic outlook.  

In August alone, the unemployment rate shot up to a 5-year high as records show a 6.1 percent increase.  The non-farm payroll continues its eight consecutive month of contraction.  

Other economic data released by authorities showed that producer prices dropped by 0.9 percent in August.  This is the worst decline suffered in two years affecting the annual pace as it declined from 9.8 percent to 9.6 percent.

The decline came amidst the continued drop in world energy prices.  Without this development, producer prices actually went up by 0.2 percent in August fueled by the increase in food consumption.

No More Speculations

Viewed in its entirety, the data should be reason enough to quash speculative sentiments that the Federal Reserve will likely increase the interest rates benchmark come the end of the year.  The Fed fund at the futures market are now pegged to have a 10 percent chance that a 25bp cut will be made at the September 16 meeting of the Fed.  

Although this speculation could be very unreliable, it could still serve as the fuel that may push up the Dollar and lead traders to regain lost profit.

In other developments, the Standard and Poor’s index 500 futures fell sharply even before the releases.  It is not clear however if the news could affect the futures in the long term as the market continues to worry about the fate of the Lehman Brothers.