Sales at U.S. retailers were flat in April, according to the official data released yesterday. What does it mean for the U.S. economy and the gold market?

The U.S. retail and food services sales were virtually unchanged in April. Consumers spent more at restaurants and on the Internet, but they cut back on purchases of home furnishings, cars, fuel and electronics. Even excluding volatile autos, sales rose only by 0.1 percent, well below expectations. In the past 12 months, retail sales increased by 0.9 percent, down from 1.7 percent in March. This was the smallest year-over-year gain since October 2009 just after the Great Recession. In fact, retail sales have been slowing since August.

What does it mean for the U.S. economy? Well, April retail sales definitely show that the weak economic activity in winter was not transitory and the soft consumer spending in the first quarter was not caused by the cold weather. There is no beginning of the anticipated yearly rebound. April’s figures were actually at the recessionary level. This is because American consumers continued to save extra money from cheaper gasoline and cut their use of credit cards. Actually, practically the only reason why the overall consumer spending did not slow as much as retail sales is that Americans are spending more on health care services. In consequence, the Atlanta Fed has now cut its projection for the second quarter from 0.8 percent to 0.7 percent. And the future does not look very bright, since median household spending growth expectations retreated significantly in April, according to the New York Fed’s Survey of Consumer Expectations.

What is not good for the U.S. economy may be, however, positive for the gold market. The sluggish consumer spending suggests little urgency for the Federal Reserve to start raising interest rates. The U.S. dollar fell to a three-month low following the data on retail sales, while the yellow metal increased to a five-week high.

The key takeaway is that the flat retail sales in April negate the mainstream view that the weak economic activity in the first quarter was transitory and the U.S. economy will rebound quickly. The sluggish retail sales and economic growth may affect the Fed’s tightening plan in terms of timing and pace of hikes. The recessionary environment with interest rates near zero will be supportive for the gold prices.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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