Retail Sales Probably Climbed in June: U.S. Economy Preview
Retail sales probably rose at a faster pace in June and the U.S. housing market strengthened as the economy began to emerge from a slowdown tied to higher taxes and budget cutbacks, economists said before reports this week.
Purchases at retailers rose 0.8 percent, the most in four months, after a 0.6 percent advance in May, according to the median forecast of economists surveyed by Bloomberg before tomorrow’s Commerce Department release. Other data may show builders broke ground on more homes, housing permits climbed and inflation was limited.
Americans bought cars and trucks last month at the fastest pace since 2007, a sign consumers have the wherewithal to keep spending as household wealth and the labor market improve. Other data this week are projected to show industrial production rebounded in June and an index of leading indicators picked up, setting the stage for stronger second-half growth.
“The transition from a soft patch to a more sustained rebound is slowly beginning to take shape,” said Millan Mulraine, director of U.S. rates research at TD Securities USA LLC in New York. “The underlying tone of retail sales is encouraging. The positive momentum in housing will continue. Manufacturing has stabilized.”
Federal Reserve Chairman Ben S. Bernanke this week in two days of testimony to Congress may shed more light on the central bank’s view of the economy and how policy makers may begin scaling back $85 billion in monthly bond purchases.
Retail sales last month got a boost from demand for automobiles. Cars and light trucks sold in June at a 15.89 million annual rate, the fastest since November 2007, according to data from Ward’s Automotive Group. The need to replace aging vehicles, along with attractive financing offers and steady hiring will keep fueling industry sales.
Ford Motor Co. (F) and General Motors Co. (GM), makers of the best-selling big pickups in the U.S., reported June sales that beat analysts’ estimates. Low borrowing costs and rising consumer wealth should continue to support spending, according to Jenny Lin, Dearborn, Michigan-based Ford’s senior U.S. economist.
Household wealth has been boosted by a rally in the stock market and higher property values. Home prices in the 12 months ended in April rose by the most in more than seven years, according to the S&P/Case-Shiller index of property values. The Standard & Poor’s 500 Index last week reached a record high.
“Economic indicators continue to improve,” Lin said on a July 2 sales call. The “consumer spending growth pace is slowly picking up.”
Costco Wholesale Corp. (COST), the largest U.S. warehouse-club chain, reported a 6 percent gain in June sales at U.S. stores open at least a year, more than analysts’ projections.
Costlier gasoline in early June probably lifted receipts at filling stations, TD Securities’ Mulraine said. The Commerce Department’s retail sales data aren’t adjusted for changes in prices.
A gallon of regular gasoline at the pump, which reached $3.63 on June 9, eased in the next few weeks to a five-month low of $3.47 on July 7, according to AAA, the biggest U.S. motoring group. Retail gasoline has again reversed course, having risen four days in a row as crude oil costs surged and refinery units shut down for repairs.
More expensive fuel bills leave less for households to spend on other goods. Excluding automobiles and gasoline, retail purchases probably rose 0.5 percent, up from the prior month’s 0.3 percent gain, economists projected ahead of tomorrow’s figures.
A Labor Department report the next day may show the consumer price index, excluding volatile food and energy costs, climbed 1.6 percent in the 12 months to June, the smallest gain in two years, according to the Bloomberg survey median. The overall cost of living climbed 1.7 percent from a year earlier and 0.3 percent from the prior month, economists forecast.
Bernanke said last week that he expects inflation to “come back up” closer to the Fed’s 2 percent target, which is based on a measure of prices linked to consumer spending. He also said the U.S. needs “highly accommodative” monetary policy for the foreseeable future.
One part of the economy that has benefited from the Fed’s efforts to keep borrowing costs low is housing. Starts (NHSPSTOT) climbed in June to a 960,000 annualized rate after a 914,000 pace in May, according to the Bloomberg survey median. The Commerce Department report, due on July 17, may also show permits for future work on new projects rose to a 1 million annualized pace.
Factories also are starting to stabilize. Industrial production advanced 0.3 percent in June after stagnating in May, the Bloomberg survey showed ahead of Fed data to be released on July 16. Manufacturing, which makes up 75 percent of total production, probably rose for the second month, economists said. Regional Fed figures also may reinforce projections that factory activity is growing in the Philadelphia and New York areas.
Rounding off the week, the Conference Board may report on July 18 that an index of leading economic indicators climbed in June for the third straight month, according to the Bloomberg survey median.
Bloomberg Survey =============================================================== Release Period Prior Median Indicator Date Value Forecast =============================================================== Retail Sales MOM% 7/15 June 0.6% 0.8% Retail ex-autos MOM% 7/15 June 0.3% 0.5% Retail ex auto/gas MOM% 7/15 June 0.3% 0.4% Retail control MOM% 7/15 June 0.3% 0.3% CPI MOM% 7/16 June 0.1% 0.3% Core CPI MOM% 7/16 June 0.2% 0.2% CPI YOY% 7/16 June 1.4% 1.7% Core CPI YOY% 7/16 June 1.7% 1.6% Ind. Prod. MOM% 7/16 June 0.0% 0.3% Cap. Util. % 7/16 June 77.6% 77.7% Manu. Prod. MOM% 7/16 June 0.1% 0.3% Housing Starts ,000’s 7/17 June 914 960 Building Permits ,000’s 7/17 June 985 1000 Initial Claims ,000’s 7/18 12-Jul 360 341 LEI MOM% 7/18 June 0.1% 0.3% ===============================================================
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