US retail sales and import prices fall sharply
By Peronet Despeignes in Washington
Published: May 14 2003 13:58 | Last Updated: May 14 2003 21:49
US retail sales slid and import prices dropped at the sharpest rate on record last month, fuelling more talk of deflation and offering further evidence of the continued weakness of the US economy. Treasury bond yields sank to 40-year lows, stock prices eased and the dollar weakened slightly in reaction to the data. Futures markets priced in stronger odds of more Federal Reserve interest rate cuts.
The fall in sales was accompanied by consumer confidence data suggesting that 73 per cent of Americans consider the economy's condition to be "negative," and the results of a poll in which most respondents said they lacked confidence in President George W. Bush's handling of the economy.
Some economists said the data showed that the rebound many had hoped for after the Iraq war had failed to materialise.
The Commerce Department said sales dipped 0.1 per cent in April, against economists' predictions of a 0.4 per cent gain. Excluding car sales, sales fell 0.9 per cent.
The figures continued an erratic pattern - sales dropped 1.4 per cent in February, but jumped 2.3 per cent in March.
Separately, the Labor Department reported a 2.7 per cent plunge in import prices - the biggest fall in a decade. The drop in both sales and import prices reflected, in part, a steep slide in prices for oil and gasoline, but in both cases, the declines were broad-based and much bigger than economists had expected.
"This report will be disappointing to [Federal Reserve Chairman] Alan Greenspan, who has led the chorus for a likely pickup," said Peter Kretzmer, an economist at Bank of America Securities.
However, William Cheney, chief economist at John Hancock Financial Services, cautioned against irrational pessimism and noted that the two-month average "still shows decent growth."
"The economy is moving forward but we have to remember that it's more like a supertanker than a speedboat. People had unrealistic expectations," he said.
Although investors appear to be anticipating better sales ahead - stock prices for major US retail chains have posted sharp rebounds since mid-March - "nearly everything hinges on the job market," which remains stagnant, Mr Cheney noted.
Adding to concerns, the ABC Consumer Comfort index, a weekly measure of consumer confidence which was also issued on Wednesday, fell for the third consecutive week, and a New York Times poll found that, despite wide support for Mr Bush's leadership, the level of confidence in his economic management fell seven points, to 47 per cent, with many respondents sceptical about his tax-cut plan and concerned about the widening federal budget deficit.
In a sign that the housing market and low interest rates are still helping to keep the economy afloat, a separate report showed weekly mortgage activity surged for the second consecutive week. But Celia Chen, an analyst at Economy.com, a consultancy, warned that "while this is a near-term positive, it poses longer-term risks."
With pent-up demand nearly exhausted, the housing market could fall quickly and badly in response to any rebound in rates, she said. |
