Retail Sales Weakness Continues

With the US economy down in the dumps, plenty of consumers have turned to saving their hard earned cash rather than feeding their desires for the latest fads.  This has caused a reversal of sorts in lifestyle, visibly seen through a savings rate that has soared above zero percent in the past two years.  Hitting a 15 year high, US personal savings is now at 6.9 percent according to the Bureau of Economic Analysis, compared to negative figures as late as 2007.  As a result, retailers have been hit hard, reverting to massive deductions in prices for existing inventory in order to maintain market share.  The strategy hasn’t been working.  According to the most recent monthly report on the health of the industry, sales at stores open at least a year in major retailers have seen an average 14.7 percent decline compared to last year’s numbers.

Retailers Seeing Red

Although some have seen the recent slump as a result of poor weather and even worse economic news, the fact remains that there were no rebate checks to boost demand.  Last year’s tax rebate checks helped to boost spending slightly as this year’s stimulus payments went straight to the savings account. As a result, the back-to-school season, widely watched by industry analysts, is looking to be a lot like last Christmas with further discounting by department stores anticipated for the upcoming school year.

What Does This Mean For The Euro?

A return to risk aversion, due to further concerns over economic weakness, may spell disaster once again for the euro as similar conditions and bearish expectations helped to lead the single currency lower this time last year.  As retail sales figures began their precipitous drop in the month of July 2008, corresponding with the market meltdown, the US dollar appreciated by as much as 23 percent against the euro before bottoming out at 1.2328 in October.  The same conditions apply here as macro traders will likely be forced to buyback the greenback, exiting out of their positions in other riskier assets (Euro, Aussie, Sterling) with the rest of the market looking for safe haven currencies on doubt of a sustained global recovery.

Subsequently, during the last 5 months of 2008, US policymakers continued their rate cutting scheme in earnest, hoping to alleviate a tightened credit market and a massive market exodus.  Should retail sales figures be to the low side of estimates, the same sentiment will likely keep Fed Chief Bernanke on the side lines, reinforcing earlier statements that monetary policy will be “very accommodative” due to a continually deteriorating economic environment in the near term.

Tags: Euro Currency, Foreign Exchange, US Dollar, US Retail Sales

This entry was posted on Tuesday, July 14th, 2009 at 2:48 am and is filed under British Pound, Currency Trading, Economic Indicators, Euro, US Dollar. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.