US Retail Sales Miss Headline Figure, But Sales Excluding Autos Show Strength
US retail sales showed a 9th straight month of gains, but the 0.4% rise in March, was slightly softer than expected, pulled down by a 1.7% decline in the sale of motor vehicle & parts. That brought down the headline figure, while the core figure – which excludes autos – rose 0.8% on the month, a figure that beat expectations.
Furniture & home furnishings sales were strong at 3.6% (biggest gain in 6 years), as were building materials (+2.2%), meaning that stores that have to do with the housing sector saw an uptick in activity. Sales of electronics was also up a healthy 2.1% showing that consumers had enough discretionary spending to buy the latest gadgets. Gasoline stations sales were up 2.6%.
Stronger spending is a sign of confidence in the labor market, which seems to be improving at a gradual pace. Still, with higher headline inflation and a high unemployment rate of 8.8%, can household spending continue to drive a sizable part of the recovery?
The USD gained a bit after this result, as the underlying core figure showed that to end the 1st quarter, consumer spending was still on pace.
UK Claimant Count Shows Mixed Result
Today’s employment report from the UK was a mixed result. While the number of people claiming unemployment benefits unexpectadly rose in March, the unemployment rate came down to 7.8% for the month of February. The big questions and one that has not been tested yet is how the labor market will fare once the austerity measures in the UK come into full force. That will include lots of public sector workers losing their jobs.
The news weakened the Pound against the Euro – as the EUR/GBP pair touched a 6-month high, though the GBP/USD pair maintained the 1.6235 level against the USD.
From Bloomberg: “Jobless benefit claims rose by 700 from February to 1.451 million, the Office for National Statistics said today in London. That compared with the median forecast of 22 economists in a Bloomberg News survey for a drop of 3,000. Unemployment measured by International Labour Organization methods slipped to 7.8 percent in the quarter through February from 7.9 percent in the three months through November.
Payrolls rose to the highest in two years in the quarter, which may add strength to Prime Minister David Cameron’s argument that the economy can withstand a government budget squeeze that will cut more than 300,000 public-sector jobs. While the Bank of England is aiding the recovery by keeping its key interest rate at a record low, consumer confidence remains weak on concern that unemployment may increase.
Euro-zone Industrial Production Weaker than Expected
Industrial production rose 0.4% in February, a figure that was about half the rise expected by economists. Compared to a year ago, production was up 7.3%, again undershooting expectations of a 7.9% year-on-year increase. The lower than expected production reading means Euro-zone growth in the 1st quarter may be less than forecast.
From Wall Street Journal: “Strong industrial-production growth in Germany and Italy was partly offset in February by sharp falls in output in Ireland and Greece, official data showed Wednesday. Growth in industrial output was also hit by a decline in energy production for the second consecutive month.
“The industrial sector is still bound to make a clear positive contribution to GDP [gross domestic product] growth in the first quarter,” said Martin van Vliet, an economist at ING. “If production were to hold steady in March, which seems to be quite a conservative assumption, it would rise by around 1% quarter-on-quarter in the first quarter, consistent with a 0.2 point [GDP] growth contribution.”"
The EUR/USD rallied to test its highs from yesterday’s session at the 1.4520 level, but was rejected from moving above that level twice. The Euro continues to remain onto its gains from last week.
Interest rate expectations as well as dollar diversification by central bank mangers will continue to weigh on the USD in that pair.
Nick Nasad
Chief Market Analyst
FXTimes
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