- Guy Berger, U.S. economist at RBS Securities Inc.
After a slump in the first quarter, analysts were betting on a pick up in growth in the second half of the year. While Fed officials offered a rosy outlook and economists joined them in their assessments, investors were eyeing for a retail sales report, which was expected to confirm whether the economy is on the right track. Unfortunately, consumers took a respite in May and were not willing to spend more. Furthermore, the number of weekly jobless claims increased to 317,000 last week. The reaction was immediate and the greenback fell versus all major peers, with EUR/USD rising to 1.3544, while USD/JPY inched below 102-mark.
Retail sales is a major proxy of consumer spending, which accounts for a majority of overall economic activity. Sales at U.S. retailers climbed only 0.3% in May to a seasonally adjusted $437.65 billion, the Commerce Department unveiled on Thursday. Analysts were expecting a 0.5% increase, while April's figure was revised to 0.5%. Sales excluding automotive purchases, or the so-called core retail sales, advanced 0.1%.
Thursday's report will most likely damp hopes for a rebound in economic growth this spring. Some analysts are now betting Q1 GDP will be revised to a 2% contraction. The Bureau of Economic Analysis will unveil the final GDP on June 25.
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