US retail sales have hit their strongest level in five months as an improved job market and higher household income weakened the impact of higher taxes.
Economists had been predicting an improvement of just 0.5% but today’s report smashed that estimate after coming in at 1.1%. Last week’s strong jobs data has boosted consumer confidence and eased the burden of the sequestration budget cuts. The continuingly improving data from the USA has spurred on speculation that the Federal Reserve may soon announce a slowdown of its monetary easing policies. So far the economy is on track to fulfil the goals needed for a slowdown to begin.
“It’s a positive indicator that consumers are adjusting to the higher payroll taxes and higher gasoline prices,” Russel Price, senior economist at Ameriprise Financial Inc. in Detroit. “People are encouraged by the employment gains we’ve seen.”
Contributing to the strong retail figures was the pent up demand for new cars with sales picking up the pace in February. So far up to 15.3 million cars have been sold n the US from the 144 million at the same time last year. Spending on general merchandise also showed gains, with clothing purchases rising by 0.5%.
Costco, the largest U.S. warehouse-club chain that yesterday reported a 39% gain in second-quarter profit, has worked to lure more shoppers to its annual memberships by lowering already-discounted prices. Sales during the period at stores open for more than a year climbed 5%, excluding changes in gas prices and foreign-currency exchange rates.
The Dollar is expected to continue to make gains over the rest of the day but further into the future the currency faces a possible barrier as the payroll tax increases begin to take effect in earnest.
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