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Weak US retail sales dampens rate rise prospects

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US retail sales were weaker than expected last month, weakening prospects that the Federal Reserve will raise interest rates next week. The 0.3% fall in retail sales follows four consecutive months of gains. US factory production also fell in August after expanding for the two previous months, the Federal Reserve said.

However, the number of Americans filing for unemployment benefits rose by less than expected last week.Paul Nolte, at Kingsview Asset Management in Chicago, said: “We’re right now in a Goldilocks economy. It’s not too hot, it’s not too cold. It’s just right to keep the Fed on the sidelines and keep interest rates right where they are.”

The Commerce Department said retail sales fell by a worse than expected 0.3% in August after rising 0.1% the previous month. Compared with August last year, sales were 1.9% lower. Car sales slipped 0.9% ahead of 2017 models arriving in showrooms, while consumers also cut back on discretionary spending, with sales at sporting goods and hobby stores falling 1.4%.

However, the looming start of the school year helped clothing sales rise 0.7%, while takings at restaurants and grocery stores edged up 0.9%.

Brittany Baumann, an economist at TD Securities in New York, agreed that the retail sales figures meant a “September hike is simply too soon”.

Lael Brainard, one of the Fed officials who sets interest rates, said this week she wanted to see stronger consumer spending data and signs of rising inflation before increasing rates.

The Fed, which meets on Tuesday and Wednesday next week, raised its main interest rate late last year for the first time in nearly a decade. The central bank has not made any adjustments since then amid concerns over stubbornly low inflation.

The dollar was little changed against major currencies in response to the latest data, although US government bond prices fell slightly.

The US unemployment rate remains at a healthy 4.9%, while monthly job gains have averaged 232,000 since June.

Source: BBCB


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