Today's retail sales surprised on the upside. Revenues increased by 2.7% over the previous month. The market had expected a mere 1.9%. It was no surprise that auto sales contributed strongly to the increase. The success of the cash for clunkers program was known beforehand. More of a surprise was that other sectors also reported significant sales increases. Excl. automotive, retail sales increased by 1.1%; the market had expected only 0.4%. Only furniture and building materials posted sales declines; all other sectors showed increases. Part of the sales increases must have been contributed by price increases (gasoline). However, even excluding this contribution, retail sales posted a solid gain, giving a positive indication of consumption.

Still, the path to recovery is long. The level of retail sales remains almost 6% below the level seen 12 months ago. Further, the cash for clunkers program has already ended and a sharp decline of auto sales during the ongoing month can be expected. We continue to expect only a slow recovery of retail sales in the months ahead. The market reacted to today's data with a significant increase of yields and a stronger dollar, the latter coming from this year's lows, reached yesterday.

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