AISLES GO QUIET
Data bolster case for another rate cut
US retail sales unexpectedly posted the first decline in seven months, suggesting a shaky economic foundation.
WASHINGTON: US retail sales unexpectedly posted the first decline in seven months, suggesting consumers are starting to become shaky as the main pillar of economic growth and potentially bolstering the case for a third straight Federal Reserve interest-rate cut.
The value of overall sales fell 0.3% in September from the prior month after an upwardly revised 0.6% increase in August, Commerce Department figures showed on Wednesday. The median estimate in a Bloomberg survey called for a 0.3% advance.
Sales in the “control group” subset, which some analysts view as a more reliable gauge of underlying consumer demand, were little changed, missing projections for a 0.3% increase. The measure excludes food services, car dealers, building-materials stores and gasoline stations.
The surprise drop in retail sales is the first decline since February and may indicate cracks are forming in the consumer spending that’s propped up economic growth in recent months.
Together with weaker business investment and manufacturing, along with a lingering trade war, weaker consumption would increase risks to the nation’s longest economic expansion on record and complicate President Donald Trump’s re-election prospects in 2020.
“Despite solid income growth and other favourable fundamentals for consumers, there were a lot of gloomy headlines in September on topics such as trade talks,’’ said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. “People might have gotten a little cautious.”
“The latest data, dovetailing with a series of deteriorating economic statistics since the September FOMC meeting, upholds expectations that economic growth will moderate into year-end and supports our view for a rate cut this month,’’ Bloomberg’s economists Yelena Shulyatyeva and Eliza Winger said.
While consumer spending and job gains were likely solid overall during the third quarter, the latest figures as well as the employment report earlier this month suggest a loss of momentum heading into the last part of 2019.
With global weakness and trade headwinds already leading Fed officials to lower interest rates at the last two meetings, some policymakers may see reason to cut again at the central bank’s next gathering Oct 29-30 in Washington.
Traders boosted bets on an October rate cut by the Fed.
Declines in automobile and gasoline sales drove most of the drop in the main number. Excluding those factors, retail sales were little changed, after a 0.4% gain the previous month.
A separate report on Wednesday showed US homebuilder sentiment climbed to the highest level since early 2018 amid cheaper borrowing costs and a still-sturdy job market.
The National Association of Home Builders/Wells Fargo Housing Market Index rose to 71 in October, the highest level since February 2018 and the fourth straight advance.
While the housing sector shows positive signs for the economy, it makes up only a small part of US gross domestic product.
A slowdown in consumer spending, which accounts for nearly 70% of growth, has greater implications for sustaining the nation’s longest economic expansion, now going for more than a decade.