Poor figures for US retail add to market worries over Fed’s QE

US RETAIL sales figures dropped below expectations yesterday, rising by only 0.4 per cent, half the increase that was predicted – indicating that consumer spending is less likely to drive growth in the third quarter.

Excluding the automobile sector, retail sales did not rise at all between May and June, staying stagnant. The US Commerce Department also announced that building materials sales fell by 2.2 per cent, the biggest fall since May last year.

Markets in the US are watching releases like retail figures closely, as the Federal Reserve has stressed that the future of its quantitative easing programme is dependent on stronger economic growth.

When the US business climate has improved sufficiently, the Fed will begin to slow down and eventually unwind its massive asset purchases.

Capital Economics’ Paul Dales said the figures suggested a poorer rate of growth for the second quarter’s GDP figures. “Even more worrying is that sales growth appears to be losing momentum heading for the third quarter,” he said.

However, the Empire State manufacturing index, which measures the state of factories in New York , came in at 9.46, considerably higher than expected. Any number above zero indicates a healthy environment for business.

Dales added on the index: “The industrial sector may be starting to improve just as the household sector is waning”.

Analysts for Saxo Bank agreed that the figures were poor, adding that there would now be extra pressure on Fed boss Ben Bernanke, who gives testimony to Congress later this week, to calm markets with further reassurances over QE.