Strong US retail sales reinforce December interest rate hike

WASHINGTON - US retail sales rose more than expected in October as households bought motor vehicles and a range of other goods, pointing to sustained economic strength that could allow the Federal Reserve to raise interest rates next month.

The Commerce Department said on Tuesday retail sales increased 0.8 percent last month, also boosted by demand for building materials, likely as households cleaned up and made repairs in the wake of Hurricane Matthew.

"This is just the kind of data the Fed doves need to see to convince them to hike rates in December. The economy is doing pretty well, this data is bullish for the economic outlook in the months ahead," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

Adding to the report's strong tone, September retail sales were revised up to show a 1.0 percent increase instead of the previously reported 0.6 percent rise. The combined September and October sales gain was the largest two-month rise since early 2014. Sales were up 4.3 percent from a year ago.

Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.8 percent last month after an upwardly revised 0.3 percent gain in September.

These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have risen 0.1 percent in September.

Economists had forecast overall retail sales increasing 0.6 percent and core sales advancing 0.3 percent last month.

The strong sales report is a good omen heading into the holiday shopping season. Last week, Macy's and Kohl's Corp. expressed optimism about the holiday shopping season, despite reporting a decline in sales in the third quarter.

US stocks were trading mostly higher, while the dollar was little changed against a basket of currencies. US Treasuries rose after declining for five straight trading sessions.

SUSTAINED STRENGTH

September's upward revision to core retail sales suggests that the economy's 2.9 percent annualized growth rate in the third quarter could be raised when the government publishes its second GDP estimate later this month.

Coming on the heels of data this month showing a rapidly tightening labor market and signs of a turnaround in the manufacturing sector, the upbeat retail sales report implied a pickup in economic activity early in the fourth quarter.

The Atlanta Fed lifted its fourth-quarter GDP growth estimate by two-tenths of a percentage point to a 3.3 percent rate after Tuesday's data.

The report also reinforced views that the Fed will raise interest rates at its Dec. 13-14 policy meeting.

Rate hike prospects have also been boosted by a rally in US stocks in the wake of the last week's election of Republican candidate Donald Trump as the next president, despite a lot of hand-wringing over his proposed policies.

The Fed this month left interest rates unchanged but said its monetary policy-setting committee "judges that the case for an increase in the federal funds rate has continued to strengthen." The US central bank raised its benchmark overnight interest rate last December and has held it steady since, largely because of concerns over low inflation.

But inflation is creeping higher. A separate report on Tuesday from the Labor Department showed import prices increased 0.5 percent in October after gaining 0.2 percent in September.

In the 12 months through October, import prices fell 0.2 percent, the smallest decrease since July 2014, after declining 1.0 percent in September.

Retail sales last month were driven by a 1.1 percent increase in auto sales and a 1.5 percent surge in receipts at online retailers. Online retailers like Amazon have been grabbing market share from traditional department chains like Macy's and Kohl's.

Sales at building material stores increased 1.1 percent following a 1.8 percent rise in September. The strength in this category was reflected in Home Depot's robust third-quarter profit and sales reported on Tuesday.

Receipts at sporting goods and hobby stores rose 1.3 percent. Sales at restaurants and bars, however, fell 0.7 percent, likely as the stormy weather kept people at home.

Households also spent more on clothing, groceries and grooming last month, but cut back on furniture. Receipts at service stations advanced 2.2 percent on rising gasoline prices.

"As uncertainty over the election outcome remains elevated, October's retail sales performance provides some comfort that the primary driver of US GDP growth remains on solid footing," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

source: www.abs-cbnnews.com

US job openings hit record high; small businesses upbeat

WASHINGTON - U.S. job openings surged to a record high in April and small business confidence perked up in May, suggesting the economy was regaining speed after stumbling at the start of the year.

The economy's stronger tone was reinforced by other data on Tuesday showing a solid rise in wholesale inventories in April, in part as oil prices stabilized.

"This is more confirmation that the economy is indeed emerging from that soft patch in the first quarter and can still pick up even faster in the next few months," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.

Job openings, a measure of labor demand, rose 5.2 percent to a seasonally adjusted 5.4 million in April, the highest level since the series began in December 2000, the Labor Department said in its monthly Job Openings and Labor Turnover Survey (JOLTS).

Hiring slipped to 5.0 million from 5.1 million in March. Economists say the lag in hiring suggests that employers cannot find qualified workers for the open positions.

The number of unemployed job seekers per open job, a measure of labor market slack, fell to 1.6 in April, the lowest since 2007 and down from 1.7 in March.

"On balance, we read the April JOLTS data as suggesting labor market momentum remains intact in the second quarter and labor market slack continues to diminish," said Jesse Hurwitz, an economist at Barclays in New York.

The JOLTS report is one of the indicators being closely watched by Federal Reserve policymakers as they contemplate raising interest rates this year. The U.S. central bank has kept the short-term lending rate near zero since December 2008.

Tightening labor market conditions were corroborated by a separate report from the National Federation of Independent Business that showed confidence among small businesses rising to a five-month high in May.

The share of businesses saying they could not fill open positions also increased to 29 percent last month, matching February's reading, which was the highest since April 2006.

REGAINING STEAM
The economy contracted at a 0.7 percent annual pace in the first quarter and growth got off to a slow start in the second quarter, in part because of the lingering effects of a strong dollar and spending cuts in the energy sector.

But a surge in job growth and automobile sales as well as gains in May factory activity suggest the economy is strengthening.

Prices for U.S. government debt fell, while U.S. stock indexes edged up. The dollar slipped against a basket of currencies.

In a third report, the Commerce Department said wholesale inventories increased 0.4 percent in April after rising 0.2 percent in March. Inventories are a key component of gross domestic product changes.

The component of wholesale inventories that goes into the calculation of GDP - wholesale stocks excluding autos - rose 0.2 percent, prompting economists at Barclays to bump up their second-quarter growth estimate by one-tenth of a percentage point to a 2.9 percent annualized rate.

Sales at wholesalers surged 1.6 percent in April, the largest rise since March of last year. Sales had been weak since last August, in part due to the negative impact of lower oil prices on the value of petroleum goods sales.

That had led to an accumulation of inventory, leaving wholesalers with little appetite to buy more merchandise.

Petroleum sales jumped 4.9 percent in April.

At April's sales pace it would take 1.29 months to clear shelves, down from 1.30 months in March. An inventory-to-sales ratio that high usually means an unwanted inventory buildup, which would require businesses to liquidate stocks. That would weigh on manufacturing and economic growth.

Economists, however, caution against reading too much into the elevated inventory-to-sales ratio, given the role that oil prices have played in depressing the value of petroleum goods sales.

Still, they expect an inventory drawdown in the quarters ahead, which is one of the reasons for less robust second-quarter GDP growth estimates. Inventories added a third of a percentage point to first-quarter GDP.

source: www.abs-cbnnews.com