U.S. retail sales grow above expectations in October

U.S. retail sales grew above expectations in October. The retail sales rose 0.2 percent sequentially, as compared with the expectations of a flat reading. The rise comes after the upwardly-revised growth of 1.9 percent sequentially in September, which was stimulated by a recovery in purchases after the hurricanes.

Most of the categories recorded growth in October, with building material stores, gasoline stations and non-store retailers being the exceptions that recorded declines of 1.2 percent, 1.2 percent and 0.3 percent, respectively. However, the fall in sales at gasoline stations was partially a price story, with the price of gasoline pulling-back at the effect of refinery shutdowns waned.

The ‘control group’ rose 0.3 percent sequentially, coming in line with consensus. Still, it follows an upwardly revised gain of 0.5 percent in September implying more consumption spending in the third quarter, noted TD Economics in a research report. Given the upward revisions in September and above expected retail sales growth in October, consumer spending seems to have risen by about 3 percent in the September quarter.

While some of the recent momentum reflects the normalization of activity following the hurricanes, looking through the volatility consumers are likely to continue to a vital support to economic growth through the next year”, stated TD Economics.

This report strengthens the case for the U.S. Fed to hike rates in December. Moreover, the outlook for rate hikes over the course of next year will depend greatly on the stance of fiscal policy. A huge tax cut at this stage in the cycle, while giving support to disposable income growth is expected to be met with more interest rate hikes by the U.S. Fed.

“Over the medium term, this will help return the economy to its trend rate of growth around 2.0 percent”, added TD Economics.

At 16:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at 36.2664. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest