Sales at US retailers posted their largest gain in five months in August on strong receipts at gasoline stations and clothing outlets, further assuaging fears of a double-dip recession. The Commerce Department on Tuesday said retail sales rose 0.4 percent, adding to data such as private payrolls and manufacturing for August that have pointed to a tentative improvement in the economy after a recent soft patch.
-- Inventories up 1 percent, largest rise in two years
"The economy is no longer rapidly decelerating, but we are not out of the words quite yet," said Ryan Sweet, a senior economist at Moody's Economy.com in West Chester, Pennsylvania. It was the second consecutive monthly sales gain and was a touch above market expectations for a 0.3 percent rise.
Sales were boosted by back-to-school buying and tax holidays in some states, with gains widespread across most categories. Auto sales, however, fell 0.7 percent. Excluding autos, sales increased by a bigger-than-expected 0.6 percent, the largest increase since March. The retail sales report lifted stocks on Wall Street. Retail shares soared, boosting the S&P retail index 1.4 percent. Electronics chain Best Buy also helped sentiment as it reported a higher-than-expected quarterly profit and raised its full-year outlook.
But some investors were sceptical consumers would continue to spend given a 9.6 percent unemployment rate and opted instead to buy US government debt, pushing up their prices. The spread between two-year and 10-year Treasury yields narrowed slightly as expectations of slower growth remained.
The US dollar slid to a 15-year low against the yen, largely driven by political developments in Japan. In a separate report, the Commerce Department said business inventories increased 1 percent in July, the largest rise since July 2008 and double market expectations for a 0.5 percent gain. The report showed sales rebounding from a July slump.
NO POLITICAL MILEAGE:
The data offered more confirmation the economy was not slipping back into recession and eased pressure on the Federal Reserve to take fresh steps to help the recovery at a policy meeting next Tuesday. "There is no sign of a retrenchment certainly, no double dip, so the Fed does not need to restart their quantitative easing, the purchase of government securities, when they meet," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
Many analysts still expect the US central bank to resume government debt purchases before the end of the year to keep interest rates low, arguing the recovery remained too fragile for the Fed to stay on the sidelines. The latest data will do little to improve the Democratic Party's chances of retaining control of Congress less than two months away from November's mid-term election.
Polls suggest Republicans could take the House of Representatives and perhaps even the Senate, which would put them in position to shape any new economic initiatives. The Senate on Tuesday was set to take up consideration of a small business lending bill backed by President Barack Obama as lawmakers continued to wrangle over whether to extend expiring tax cuts for upper-income Americans.
The recovery from the worst recession since the 1930s has cooled off as the boost from an $814 billion government stimulus package fades, but the retail sales and inventory data indicated the economy continues to expand.
Last month, receipts at gasoline stations increased 1.9 percent after rising 2.2 percent in July, a gain some analysts said reflected rising prices. Building materials and garden equipment sales were unchanged after falling 0.4 percent in July, suggesting some stability after sharp declines following the end in April of a popular home-buyer tax credit.
Clothing sales increased 1.2 percent. So-called core retail sales, which exclude autos, gasoline and building materials, rose 0.5 percent after dipping 0.1 percent in July. Core sales correspond most closely with the consumer spending component of the government's gross domestic product report. Inventories contributed hugely to economic growth during the early part of the recovery, but the boost faded in the second quarter of this year. However, if the trend in July is sustained, inventories could make a significant contribution to gross domestic product growth in the third quarter.