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US Q3 and Q4 GDP Will Be Above Expectations

Data published yesterday suggest that Q3 GDP will be revised upward on December 5th. It is very likely that the figure will be above 3% (QoQ Annualized) following the upward revision of total business inventories in August and a stronger than expected rise in September. Moreover, in the same time, the revision of September retail sales was also positive.

 

According to Census, total business inventories rose 0.6% MoM in September (against 0.3%e MoM) while August data were revised from +0.3% MoM to 0.4% MoM. On the other hand, retail sales were revised in September from +0.3% MoM to 0.4% MoM.

 

In the meantime, retail sales were largely above expectations in October at +0.4% MoM (against +0.1%e MoM) which confirms that the impact of government shutdown was limited. As a consequence, the consensus should rise its expectations of a 2% (QoQ Annualized) growth in Q4.

 

These figures show that economic situation has improved since the last FOMC meeting so that 2013 forecasts set in September should be met.

Euro Leaders Will Try to Secure Recovery after Strong Data Coming from France and Germany

On Friday, European leaders agreed on new steps to fight youth unemployment and promote lending to SMEs.

 

European leaders agreed to deploy €8 billion (up from €6 billion) to create jobs for young people and frontload the initiative for the next two years, starting from January 2014:

 

More from China Daily:

 

Top leaders of the European Union (EU) have agreed on an 8-billion-euro youth employment initiative, aimed at solving the urgent issue of youth unemployment as well as boosting small and medium-sized enterprises.
 
EU leaders, who are here attending a two-day summit, decided to scale up the funding for the initiative from 6 billion to 8 billion euros and “frontload” the initiative for the next two instead of seven years, starting from January 2014, European Council President Herman Van Rompuy said at a press conference in the wee hours of Friday.
 
Many EU member states would count on the initiative to help provide a job, training or apprenticeship to young people within four months after leaving school or becoming jobless.

 

Leaders also approved plans for the European Investment Bank to lend hundreds of billions of euros to small and medium-sized enterprises (SMEs) particularly in southern EU states. The communique urges the EIB to implement its plan to increase its lending activity in the EU by 50% (€150 billion) over 2013-2015.

 

More from Kathimerini:

 

According to a draft of the summit’s conclusions seen by Kathimerini, European leaders are to invite the EIB to accelerate procedures for the provision of 150 billion euros in the form of loans to European economies over the next two years. Of these funds, 100 billion euros would go toward funding SMEs.

 

At the same time data coming from France and Germany showed a rebound in domestic consumption in May and suggest that European growth could stabilize in Q2:

 

More from Reuters:

 

French consumers spent significantly more than economists had expected in May despite concerns about surging unemployment, data showed on Friday, rekindling some hopes that France might be slowly emerging from recession.
 
However, although the risk of prolonged recession may be receding, activity remains far too weak in the euro zone’s second-biggest economy for a rapid recovery, economists said.
 
The INSEE statistics agency reported that household spending rose 0.5 percent over the month, beating by a wide margin the average forecast given by economists of a 0.1 percent fall.

 

More from Bloomberg:

 

German retail sales rose more than economists forecast in May, adding to signs that a recovery in Europe’s largest economy has gathered pace amid record-low interest rates, while inflation accelerated.
 
Sales adjusted for inflation and seasonal swings climbed 0.8 percent from April, when they fell 0.1 percent, less than originally estimated, the Federal Statistics Office in Wiesbaden said today. Economists had predicted a May increase of 0.4 percent, according to the median of 23 forecasts in a Bloomberg News survey. The consumer price index rose more than forecast, climbing 1.9 percent this month, separate data showed.

Retail Sales Show the Resilience of the US Economy

Data from the commerce department show retail sales rose more than expected in May (0.6% > 0.4%e). That’s up from a 0.1% gain in April and it’s the fastest pace since February.

 

In details, eight of 13 major retail categories showed gains last month. Sales at car dealerships rose 1.8 per cent in May, the largest increase since 6 months, following a 0.7% gain in April. Building materials (+0.9%) and food & beverages stores (+0.7%) were supported by a milder weather while spending from gasoline stations fell (-0.2%).

 

Core sales, which strip out volatile components such as cars, petrol and building materials and are the best guide to the underlying health of the US consumer rose 0.3% in May, after a 0.2% gain the prior month.

 

The only not-so-good reading for the May retail sales report was the downward revision to the control group for April, from an original increase of 0.5 percent to just 0.2 percent. It implies a downward revision for the Q1 GDP more precisely the personal consumption expenditures of goods.

 

US Total Vehicle Sales Should Be at or Above 15 million SAAR in May

Automakers will release May vehicle sales next Monday (June 3) and currently, analysts estimate May sales to be at or above 15 million (seasonally adjusted and annualized). It will represent an increase compared to April when sales slowed to their lowest monthly pace (14.92 million) since last autumn.

 

Here are some forecasts from specialists:

 

1/ Edmunds: Car Sales Expected to Get Back on Track in May, Says Edmunds.com

 

“Edmunds.com, the premier resource for car shopping and automotive information, forecasts that 1,420,937 new cars and trucks will be sold in the U.S. in May for an estimated Seasonally Adjusted Annual Rate (SAAR) this month of 15.1 million light vehicles. The projected sales will be a 10.6 percent increase from April 2013 and a 6.5 percent increase from May 2012.” … “May sales quickly chased away any of last month’s concerns that the auto recovery is stalling”

 

2/ TrueCar: May 2013 New Car Sles Expected to Be Up Almost Nince Percent Accordiing to TrueCar; May 2013 SAAR at 15.2M, Highest May SAAR since 2007

 

“For May 2013, new light vehicle sales in the U.S. (including fleet) is expected to be 1,435,495 units, up 8.5 percent from May 2012 and up 12.1 percent from April 2013 (on an unadjusted basis).” … “The May 2013 forecast translates into a Seasonally Adjusted Annualized Rate (“SAAR”) of 15.2 million new car sales, up from 14.9 April 2013 and up from 13.9 million in May 2012.”

 

3/ JD Power: J.D. Power and LMC Automotive Report: May New-Vehicle Retail Selling Rate Expected to be 1 Million Units Stronger than a Year Ago

 

“Robust new-vehicle retail sales in May are the driving factor of returning total sales above the 15-million unit selling level for the month, according to a monthly sales forecast developed by J.D. Power & Associates’ Power Information Network”

 

4/ Wards: May Sales Should Return to Trend

 

“Steadily improving economic factors, including rising consumer confidence, should help boost May U.S. light-vehicle deliveries back to the current 6-month sales rate after an April dip in the seasonally adjusted annual rate, a new WardsAuto forecast says.” … “U.S. auto makers are expected to sell 1.43 million cars and light trucks in the month, equivalent to a 55,127-unit daily rate over 26 selling days, a 7.8% improvement from year-ago that also had 26 days.”

 

5/ Kelley Blue Book: New-car Sales To Improve 6 Percent In May With Help From Memorial Day Weekend Sale Events

 

“New-car sales will hit 15.0 million seasonally adjusted annual rate (SAAR) in May, which is an expected 6 percent year-over-year improvement, according to Kelley Blue Book www.kbb.com, the leading provider of new and used car information.”

 

This rebound in sales is coherent with some articles which underlined that U.S. automakers accelerated production lines and, in some cases, even canceled the North American industry’s traditional summer factory shutdowns to meet strong demand.
 
As a consequence, in May, we can expect:
 
1/ an increase of industrial production
2/ a rebound of retail sales
3/ some hiring in the auto sector