US Retail Sales October 2010

In October 2010, US headline retail sales were up an impressive 1.2%m/m, which was well above market expectations for an increase of 0.7%m/m. The strength was substantially supported by higher motor vehicle sales (up a massive 5.0%m/m). This is the fourth consecutive monthly improvement in overall retail spending, following a decline in both May and June 2010. On an annual basis, US retail sales are up 7.3%y/y (in nominal terms), which is well above the 4.2%y/y recorded as recently as August 2010.

If motor sales are excluded, retail sales rose by a modest 0.4%m/m in October 2010, in line with expectations. If vehicle and gasoline sales are excluded (i.e. core retail sales), retail spending was also up 0.4%m/m, slightly ahead of expectations for a rise of 0.3%m/m.

In the past couple of months, US consumer related economic data has clearly become a little more heartening.

This includes:

• Slightly better weekly jobless claims - down to a near-term low of 435 000 last week
• Slightly higher consumer confidence - University of Michigan confidence index up more impressively in November 2010
• Better than expected retail sales over the past two months
• Improving trend in motor vehicle sales - current sales at highest level since August 2009
• Consumer credit slightly more encouraging - consumer credit rose in September 2010 for the first time since January 2009
• Slightly lower personal savings levels - personal savings down to 5.3% compared with a recent high of 6% in June 2010
• Better than expected non-farm payroll data - up 151 000 in October 2010, with previous two months revised higher

In contrast, the residential housing market remains extremely weak, with house prices declining further in two of the last three months. The housing market remains the most fragile part of the US economy.

The above data does not yet suggest an upward adjustment to expected consumer activity, but rather slightly less concern about a return to recession conditions. One could argue that the latest consumer related economic data is reflecting in the US bond market, with the 10-year government bond yield rising from a low of 2.41% on 8 October to 2.76% two days ago; despite QE2.

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