Slower US retail sales raise fears for economy/Surprise slowdown in US retail sales

Surprise slowdown in US retail sales
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: September 14 2007 14:44 | Last updated: September 14 2007 23:08


US retail sales slowed last month as concerns mounted about the economic impact of the downturn in the housing sector and turbulence in financial markets.

Purchases were weaker than expected as sales growth slowed to 0.3 per cent from 0.5 per cent, the commerce department said.

The surprise slowdown in sales added to fears that US households will curtail spending as house prices weaken and borrowing conditions tighten.

Stocks fell and bond yields slid as investors priced in a greater likelihood of aggressive interest rate cuts by the Federal Reserve, starting next week. The yield on the benchmark 10-year Treasury bond fell to 4.42 per cent from 4.47 per cent.

“Recent financial distress and gradual slowing in the US economy are now limiting consumer resilience,” said Peter Kretzmer, an economist at Bank of America.

The slowdown in purchases was felt most by building supply stores, clothing retailers and service stations, the department said. But carmakers appeared to attract buyers amid a price war.

“The global economy appears to be at a turning point,” said Paul Sheard, an economist at Lehman Brothers, adding it had been hit by “two related shocks”.

“First, the US housing recession has turned out to be considerably worse than we envisaged...Secondly, the subprime mortgage meltdown has triggered a broad sell-off across capital markets, with incipient elements of financial contagion and panic.”

He added the “strong interactions between these spheres make for an extremely uncertain medium-term economic and financial outlook.”

“The key uncertainty revolves around how long and how severe the US housing recession turns out to be and whether it tips the US economy into, or close to, recession,” he said.





Slower US retail sales raise fears for economy
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: September 14 2007 14:44 | Last updated: September 14 2007 14:44


US retail sales were weaker than expected last month, according to fresh figures that underlined concerns consumer spending would slow amid the housing downturn and market turmoil.

Sales growth slowed to 0.3 per cent from 0.5 per cent, the Commerce Department said, while purchases excluding automobiles unexpectedly fell 0.4 per cent.

The surprise slowdown will add to fears that the economy will slow as households restrain spending as the value of their homes decline and borrowing conditions tighten.

A sharp downturn in household spending - which accounts for more than two thirds of the economy - is likely to force the Federal Reserve to continue cutting interest rates after widely expected reductions next week.

Investors priced in a greater likelyhood of rate cuts as the yield on the benchmark 10-year Treasury bond fell to 4.42 per cent, from 4.47 per cent.

The slowdown in purchases was pronounced at building supply stores, clothing retailers and service stations, the Commerce Department said.

Retail sales, which account for almost half of all consumer spending, had been forecast to rise 0.5 per cent.

Some businesses that cater for household goods saw an improvement in sales, including furniture and electronics stores.

Much of rise in retail sales was due to a 2.8 per cent increase in auto sales, which economists attributed to new financial incentives being offered by manufacturers.

There were also separate signs of easing inflation, as the prices of goods imported into the US unexpectedly fell 0.3 per cent in August as oil and natural gas costs dropped, the Labor Department said.

Meanwhile, the current account deficit narrowed in the second quarter to $191bn, or 5.5 per cent of GDP, compared to $197bn the previous quarter.