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US Retail Sales Contracts For The First Time In 5 Months, US Dollar Pulls Back

US retail sales, as measured by the Commerce Department fell 0.1 percent in July - marking the first negative reading in five months - as motor vehicle purchases plunged 2.4 percent. The news adds to the pile of evidence suggested that US consumers are suffering under the weight of high food and energy prices, along with deteriorating labor market conditions and plunging home prices.

Excluding autos, the index rose less than expected by 0.4 percent. Looking at a further breakdown of the report, it appears that the decline in average gas prices from over $4/gallon during the last half of July helped to slow the gasoline station component, which only increased 0.8 percent (compared to 4.0 percent in June and 3.3 percent in May). Overall, the report highlights the fact that retailers are at a particular disadvantage in the current economic scenario, as deteriorating labor market conditions and persistently high energy and food prices limit discretionary income. As a result, those that are able to maintain low prices, such as discounters and wholesalers, are likely to be the only retailers to see gains in coming months.

Meanwhile, the Labor Department reported that the US import price index rose 1.7 percent in July to push the annual rate to yet another record high of 21.6 percent. The biggest increases, as usual, stemmed from petroleum and industrial supplies (such as raw materials). However, given the sharp appreciation of the US dollar recently, the August reading of the import price index could actually show much slower gains, if not declines.

Written by Terri Belkas, Currency Strategist of