Media reports have declared that the US recession has ended. Most analysts expect the US economy to grow in the third quarter as recent economic data indicates that the US housing market and manufacturing sectors are improving and consumer confidence rising. The strength of the recovery remains in question. The main risk to the US economy is the uncertain outlook for consumer spending. Rising US unemployment and weak labor market are major headwinds to consumer spending. Consumer spending makes up 70% of US GDP. A sustained recovery in consumption remains tied to the jobs outlook and credit conditions. Investors will be closely monitoring US retail sales for clues to the strength of US consumer spending. The retail sales report is seen as a key indicator of consumer spending, consumer confidence and the strength of the US economy.

US September retail sales will be released on Wednesday October 14th. The U.S. Census Bureau reported that August retail sales rose 2.7% after falling 0.2% in July. This marked the biggest jump in retail sales since January 2006. A 1.9% rise in auto sales sparked by the cash for clunkers program was the main reason for the strong August retail sales rise. Excluding auto sales August retail sales rose 1.1%. This marked the best rise in retail sales ex-autos since January. The annual rate of US retail sales remains 5.3% below last year's level. The cash for clunkers program ended in August. Auto sales most likely weakened in September. This suggests that September retail sales will be weaker. In addition, retail gas prices declined from $2.60 per gallon to around $2.47 per gallon during the month of September. The decline in gasoline prices will contribute to additional weakness in the September retail sales report. On the positive side, September same-store sales rose 0.6%, a 1.1% was expected. This marked the first increase in same-store retail sales since August of 2008. The improvement in September same-store sales generates hope for the upcoming holiday sales.

September retail sales are expected to fall by 2.1% and rise by just by just 0.2% ex-autos. The impact of the retail sales report for the USD depends on how the equity markets react to the data. At this writing the USD is trading at a 14 month low and equities at new highs for 2009. The USD decline is attributed to rising US budget deficits, near zero US interest rates, diversification of central bank USD reserves and diminished safe haven US demand fueled by optimism about global recovery. A sharp drop in September retail sales could dent optimism about the US recovery and would suggest that the recovery will likely be weak. There is concern that as government programs to boost growth like the cash for clunkers end, consumer demand will be too weak to sustain the recovery. The September retail sales could dampen risk appetite and spark a USD rebound as the report shows the US economy remains on shaky ground.

Source U.S. Census Bureau