United State January Retail Sales Rise Less than Expected

Retail spending in January 2011 rose only 0.3% relative to
expectations of a 0.5% increase. As well, the gain in December 2010
was revised down slightly to 0.5% from an initially reported gain of
0.6%. It was a similar tale on an ex-auto basis for which sales rose
0.3% but was below expectations for a 0.5% gain. The gain in ex-auto
sales in December was also revised down to 0.3% from the 0.5%
previously estimated.

The report confirmed that auto sales rose a modest 0.5%, which was in
line with earlier reported unit auto sales. This increase represented
a slowing from a 1.5% gain in December (previously reported as 1.1%).
Most of the downward surprise in the January report was in the
gasoline and building materials component. The former rose a strong
1.4%, yet we had expected rising gasoline prices to send this
component up an even superior 4% in the month. Without sales at auto
dealerships and service stations, sales rose a still modest 0.2%
following a 0.1% gain in January. The modest January gain in this
measure reflected an unexpected 2.9% plummet in building materials
following a 1.8% rise in December. Adverse weather in the month might
have been a factor weighing on sales for this component.

The retail sales measure that goes into the consumer spending
component of GDP excludes auto, gasoline and building material sales.
This measurement managed to rise a solid 0.4% although the December
increase was revised down to -0.1% from a previously estimated 0.3%.
The downward revision to December sales will likely result in
fourth-quarter 2010 annualized consumer spending growth being lowered
by 0.2 percentage points to 4.2%. The bounce back in January, but,
augurs well for growth in this key expenditure area to remain solid by
rising an expected 3.2%.

The projected gain in first-quarter 2011 consumer spending assumes
strengthening job gains during the quarter thus recovering from
January's disappointing, and likely weather-related, gain of only
36,000. Continued strength in spending is also a reflection of the
payroll tax cuts introduced at the start of the year, thereby lending
households additional disposable income. Monetary policy will also
play a role, with the system remaining very liquid and interest rates
lows. This highly accommodative stance by the Fed is unlikely to be
altered in the near term, as the central bank tries to sustain the
recent strengthening in growth so as to place superior downward
difficulty on the unemployment rate. Our forecast assumes both the
completion of QE2 by mid-2011 and the maintenance of the current 0% to
0.25% range for Fed funds for this year and into 2011.

Source: ActionForex.Com