Tax Windfall, Tight Labor Market Drive Retail: Impact on Gold
US retail sales healthy
US retail sales increased at a healthy pace in April, according to data released by the U.S. Department of Commerce on May 15. The sales value increased 0.3% in April over March, which is in line with the median forecast. That signaled that consumer spending, which forms about two-thirds of the US economy, could rebound from a weaker point in the first quarter.
March retail sales growth was revised higher to 0.8% from 0.6%. That confirmed market participants’ expectations that the weakness in the first quarter was temporary. The SPDR S&P Retail ETF (XRT), which tracks a broad-based index of stocks in the US retail industry, rose 0.3% on this news.
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Strong jobs market and tax windfall driving spending
A strong US jobs market and the windfall from tax deductions are most likely driving consumers to spend more. That has offset the impact from rising fuel prices. Gasoline prices (USO) have risen 31% per gallon year-to-date.
According to James Kinghtley, chief international economist at ING Bank, “Households are in good spirits and are spending in the new season. Employment is rising, wages are growing and tax cuts means there is more cash in people’s pockets.”
After last week’s softer consumer inflation figures, retail sales data came as a relief to investors.
Manufacturing index also strong
In another report, the Empire State Manufacturing Index rose in May to 20.1 from 15.8 in April. Economists were expecting 15.5. A level above zero indicates improving conditions. It also showed that the economy is off to a stronger start in the second quarter compared to the first quarter.
A stronger US economic outlook underscores the tighter-than-expected monetary policy by the Federal Reserve. That’s negative for gold prices (GLD), which have fallen 0.9% year-to-date as of May 15.