The US recession is “very likely over”, Ben Bernanke, Federal Reserve chairman, said as data showed the last month’s retail sales rise fastest for 3 years.
Sales rose 2.7%, with the expected boost from the popular “cash for clunkers” car rebate program accompanied by a surprise pick-up in other spending. This raised hopes that US consumers might be re-emerging from the rubble of the housing market collapse, the roller-coaster ride in equities markets and rising unemployment.
“This is a consumer that is in a lasting full recovery mode,” said Chris Rupkey, at the Bank of Tokyo/Mitsubishi UFJ. “The Fed is going to need to stop talking about its exit strategy and start implementing it if today’s data keeps up.”
Others were more cautious, pointing out that August was the back-to-school month. “I’d like to see if this is just a one-month bounce or an actual trend,” said Adam York, at Wells Fargo.
Many economists believe that consumer spending will be constrained for months by households’ limited access to credit and their desire to reduce their debts. However, after a long period of near-stagnant spending, there may be pent-up demand for some goods.
Mr Bernanke, who did not comment directly on the sales report, remained cautious about the shape of the recovery. He said he expected a “moderate” recovery in 2010 with growth “not much faster than the underlying potential growth rate of the economy”—which means around 3%.
Car and car parts sales jumped 10.6% in August thanks to the now-defunct clunker scheme, while petrol stations’ sales also jumped 5.1% as the price of oil rose during the month.
But even excluding all auto-related purchases and petrol, retail sales were up a healthy 0.6% with higher spending on clothes, sports goods, books, electronics and food.
Meanwhile, wholesale prices rose 1.7% in August after falling 0.9% in July. The rise was greater than analysts expected, given a lot of spare capacity in the economy, and was led by an 8% rise in energy prices and a 23% jump in the cost of petrol.
“With gold at $1000 an ounce, we are concerned about the outlook for inflation later in 2010 and this report suggests that inflation pressures may be beginning to stir in manufacturing,” said John Ryding and Conrad DeQuadros, economists at RDQ Economics.