Har­vey slams US re­tail sales, industrial out­put

Hur­ri­cane dents eco­nomic growth in Q3, im­pacts la­bor mar­ket

Kuwait Times - - BUSINESS -

US re­tail sales un­ex­pect­edly fell in Au­gust and industrial out­put recorded its big­gest drop since 2009 as Hur­ri­cane Har­vey dis­rupted ac­tiv­ity, sug­gest­ing the storm could dent eco­nomic growth in the third quar­ter. Har­vey, which lashed Texas in the last week of Au­gust, also has im­pacted the la­bor mar­ket. Hur­ri­cane Irma, which struck Florida last week­end, also is likely to hurt the econ­omy, though an­a­lysts ex­pect a re­bound in the fourth quar­ter.

“The early re­turns from Har­vey are trick­ling in and the news is not good,” said Joel Naroff, chief econ­o­mist at Naroff Eco­nomic Ad­vi­sors in Hol­land, Penn­syl­va­nia. “Econ­o­mists are likely mark­ing down third-quar­ter growth and mark­ing up the fourth quar­ter.”

The Com­merce Depart­ment said re­tail sales dropped 0.2 per­cent last month, the big­gest de­cline in six months as mo­tor ve­hi­cle sales tum­bled 1.6 per­cent. Sales of build­ing ma­te­ri­als, elec­tron­ics and ap­pli­ances as well as cloth­ing also fell. While not­ing that it could not iso­late the im­pact of Har­vey on re­tail sales, the depart­ment said it re­ceived in­di­ca­tions from com­pa­nies that the hur­ri­cane had “both pos­i­tive and neg­a­tive ef­fects on their sales data while oth­ers in­di­cated they were not im­pacted at all.” Though Har­vey likely de­pressed re­tail sales last month, data for July and June were re­vised down, sug­gest­ing a mod­er­a­tion in con­sumer spend­ing af­ter brisk growth in the sec­ond quar­ter.

Econ­o­mists had forecast re­tail sales nudg­ing up 0.1 per­cent in Au­gust. While last month’s drop in mo­tor ve­hi­cle sales was the largest in seven months, the re­place­ment of flood-dam­aged ve­hi­cles, es­pe­cially in the Hous­ton area, is ex­pected to de­liver a boost.

Over­all re­tail sales in­creased 3.2 per­cent in Au­gust on a year-on-year ba­sis. Ex­clud­ing au­to­mo­biles, gaso­line, build­ing ma­te­ri­als and food ser­vices, re­tail sales fell 0.2 per­cent last month af­ter an un­re­vised 0.6 per­cent in­crease in July. These so­called 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, in­creased at a 3.3 per­cent an­nu­al­ized rate in the sec­ond quar­ter. That boosted GDP growth to a 3.0 per­cent rate in the April-June pe­riod. US stocks inched up to record highs, while prices of US Trea­suries slipped. The dol­lar fell against a bas­ket of cur­ren­cies.

‘Walk­ing wounded’

In a sep­a­rate re­port on Friday, the Fed­eral Re­serve said industrial pro­duc­tion de­clined 0.9 per­cent in Au­gust. That was the big­gest drop since May 2009 and fol­lowed six straight monthly gains. The Fed at­trib­uted about 0.75 per­cent­age point of the de­cline to storm ef­fects that “tem­po­rar­ily cur­tailed drilling, ser­vic­ing, and ex­trac­tion ac­tiv­ity for oil and nat­u­ral gas.”

Econ­o­mists ex­pect industrial out­put to de­cline fur­ther in Septem­ber, with Irma likely weigh­ing on util­i­ties. “Food pro­cess­ing is also go­ing to join the list of the walk­ing wounded be­cause South Florida grows and pro­cesses a lot of food,” said Michael Mont­gomery, a US econ­o­mist at IHS Markit in Lex­ing­ton, Mas­sachusetts. Other data from the New York Fed on Friday showed its in­dex of fac­tory ac­tiv­ity in New York state re­mained at lofty lev­els in Septem­ber amid strong or­ders growth, in­di­cat­ing that man­u­fac­tur­ing re­mains on solid ground apart from the storm-re­lated dis­tor­tions.

The weak re­tail sales and industrial out­put re­ports prompted the At­lanta Fed to slash its thirdquar­ter GDP es­ti­mate to a 2.2 per­cent rate from a 3.0 per­cent pace. The data, how­ever, did lit­tle to change ex­pec­ta­tions that the Fed will an­nounce a plan to start shrink­ing its $4.2 tril­lion portfolio of Trea­sury bonds and mort­gage-backed se­cu­ri­ties at its Sept. 19-20 pol­icy meet­ing. The US cen­tral bank is ex­pected to raise in­ter­est rates again only in De­cem­ber. It has in­creased bor­row­ing costs twice this year.

De­spite slug­gish wage growth, even as the la­bor mar­ket nears full em­ploy­ment, the fun­da­men­tals for con­sumer spend­ing are solid. In ad­di­tion to the strong stock mar­ket, house prices have con­tin­ued to rise. Last month, sales at build­ing ma­te­rial stores fell 0.5 per­cent af­ter surg­ing 0.9 per­cent in July. Clean-up and re­build­ing in the af­ter­math of Har­vey and Irma could buoy sales of build­ing ma­te­ri­als in Septem­ber.

Re­ceipts at ser­vice sta­tions in­creased 2.5 per­cent in Au­gust, re­flect­ing higher gaso­line prices. Sales at elec­tron­ics and appliance stores fell 0.7 per­cent and re­ceipts at cloth­ing stores dropped 1.0 per­cent af­ter ris­ing 0.5 per­cent in July.

Sales at on­line re­tail­ers de­clined 1.1 per­cent in Au­gust, the big­gest drop since April 2014. That was likely pay­back fol­low­ing a 1.8 per­cent surge in July, which was driven by Ama­zon.com’s Prime Day pro­mo­tion. Re­ceipts at restau­rants and bars rose 0.3 per­cent and sales at sport­ing goods and hobby stores edged up 0.1 per­cent. Stock­piles

At the US same time, busi­nesses in­creased their stock­piles in July, but at a slower pace than in June. Business in­ven­to­ries rose by a sea­son­ally ad­justed 0.2 per­cent in July, fol­low­ing June’s gain of 0.5 per­cent, the Com­merce Depart­ment said on Friday. The June in­crease in in­ven­to­ries was the most since a 0.9 per­cent gain in Novem­ber of last year.

Sales rose 0.2 per­cent in July, match­ing the June gain. Econ­o­mists ex­pect that in­ven­tory growth will strengthen fur­ther in com­ing months and help sup­port over­all eco­nomic ex­pan­sion.

An­nual GDP growth im­proved to 3 per­cent in the sec­ond quar­ter of 2017. That fol­lows a lack­lus­ter 1.2 per­cent ex­pan­sion in the first quar­ter, which was slowed partly be­cause in­ven­to­ries sub­tracted from over­all eco­nomic ac­tiv­ity. Econ­o­mists be­lieve busi­nesses re­build­ing their stock­piles could add as much as a half per­cent­age point to over­all eco­nomic growth in the cur­rent quar­ter.

When busi­nesses in­crease stock­piles, it is gen­er­ally seen as a sign of their con­fi­dence that sales will in­crease in the com­ing months. A de­crease in in­ven­to­ries can be a sign of pes­simism about fu­ture sales.

July in­ven­tory gains were led by a 0.6 per­cent in­crease in stock­piles at the whole­sale level and a 0.2 per­cent uptick in the man­u­fac­tur­ing sec­tor. Those in­creases helped off­set a 0.1 per­cent drop-off in re­tail in­ven­to­ries. — Agen­cies

NEW YORK: In this Aug 22, 2017 photo, a cus­tomer looks at shoes at a Foot Locker in New York. The Com­merce Depart­ment re­ported on business stock­piles in July. — AP

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