Flash Comment Us 110609

Investment Research — General Market Conditions

11 June 2009

Flash Comment US: Auto and gasoline sales lift consumer spending „

US retail sales rebounded as expected in May, and April sales were revised up. However, the headline number looks better than the details.

„

Higher prices at the pump lifted nominal gasoline sales, which boosted the headline number. Core sales were flat on the month, and the trend in consumer spending thus remains a stabilisation. The data is broadly in line with our expectation of zero growth in private consumption in Q2.

„

Apart from autos and gasoline, consumers continue to be reluctant to spend, despite the lift to real incomes from tax cuts and transfers. However, we expect the savings rate to retrace somewhat and consumption to pick up again in the coming months, as the shocks from tight credit, declining net wealth and skyrocketing unemployment fades.

Details: A spike in gasoline sales of 3.6% m/m, as higher prices at the pump boosted nominal sales, was a big factor in the rise in retail sales. Auto sales rebounded as well, rising 0.5% m/m. However, it looks like consumers went bargain hunting, bringing nominal sales down, as unit auto sales had indicated a much higher increase in sales. The details of the report are mixed. Clothing sales posted a 0.4% m/m increase and building materials are up 1.3% on the month, while weakness was seen in General merchandise, Electronics, Furniture and Department stores. Core sales (excl. autos, gasoline and building materials) was flat on the month. Taking the upward revision to April sales into account and assuming PCE inflation at 0.2% in May, this leaves overall Q2 real private consumption growth tracking 0.2% q/q AR - not far from our current forecast of 0.0%. Assesment & Outlook: So far, the major income boost from tax relief, low energy prices and mortgage refinancing has only been able to produce a stabilisation in consumer spending since October. Consumers have raised their savings rate extraordinarily fast over the past eight months which has left consumer spending under pressure. Today’s data suggests that this trend continued in May with real personal spending likely to post a modest 0.3% m/m increase. Looking forward, absent any new negative shocks, we are likely to be past the rapid upward adjustment in the savings rate. We expect the impact from the financial shock, the loss of net wealth and the rise in unemployment to fade gradually over the coming months, removing some of the upward pressure on savings. Fiscal stimulus will continue to lift incomes over the coming months, and with the monthly savings rate to take back some of the increase over the coming months, we expect private consumption growth to be back in positive territory in Q3.

Key figure (Retail sales) % m/m Act

Con

DB

Last

Headline

0.5

0.5

0.9

-0.2

- ex autos

0.5

0.2

0.5

-0.2-

Stabilisation in retail sales … 400 USD bln USD bln 375 Total retail sales 350 325 300 275 Retail sales ex. autos 250 225 200 00 01 02 03 04 05 06 07 08 09

400 375 350 325 300 275 250 225 200

Source: EcoWin

…and real private consumption 8.4 USD 1000bln

USD 1000bln

8.3

8.4 8.3

8.2

8.2 US private spending

8.1 8.0

8.1 8.0

Preliminary estimate for May consumption

7.9

7.9 06

07

08

09 .

Source: EcoWin and Danske Bank

(more charts on page 2)

Senior Analyst Signe Roed-Frederiksen +45 45 12 82 29 [email protected]

www.danskeresearch.com

Flash Comment

Core retail sales on a flat trend… 12 % over 3 mth, AR

…despite a surge in real disposable income… Mean (2004 - present)

12

10

10

8

8

6

6

4

4

2

2

0

0

Sales excl. cars and gasoline st. 3 mth. avg. Sales excl. cars, gasoline st. and building materials, 3 mth avg.

-2 -4 -6 -8 92

-2 -4 -6 -8

94

96

98

00

02

04

06

08

9.2

USD trn

9.1

9.1 Real personal disposable income

9.0

9.0

8.9

8.9

8.8

8.8

8.7

8.7

8.6

8.6

8.5

8.5 Jan

Source: EcoWin and Danske Bank

9.2

USD trn

Apr

Jul 07

Oct

Jan

Apr

Jul 08

Oct

Jan

Source: EcoWin and Danske Bank

…as households boost their savings 12.5

12.5 % of disposable income

% of disposable income

10.0

10.0 US personal savings rate

7.5

7.5

5.0

5.0

2.5

2.5

0.0

0.0

-2.5

-2.5

-5.0

-5.0 86 88 90 92 94 96 98 00 02 04 06 08

Source: EcoWin and Danske Bank

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09

Flash Comment

Disclosure This report has been prepared by Danske Research, which is part of Danske Markets, a division of Danske Bank. Danske Bank is under supervision by the Danish Financial Supervisory Authority. The author of this report is Signe Roed-Frederiksen, Senior Analyst. Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high quality research based on research objectivity and independence. These procedures are documented in the Danske Bank Research Policy. Employees within the Danske Bank Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and to the Compliance Officer. Danske Bank Research departments are organised independently from and do not report to other Danske Bank business areas. Research analysts are remunerated in part based on the over-all profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or dept capital transactions. Danske Bank research reports are prepared in accordance with the Danish Society of Investment Professionals’ Ethical rules and the Recommendations of the Danish Securities Dealers Associations. Financial models and/or methodology used in this report Calculations and presentations in this report are based on standard econometric tools and methodology. Documentation can be obtained from the above named authors upon request. Risk warning Major risks connected with recommendations or opinions in this report, including a sensitivity analysis of relevant assumptions, are stated throughout the text. First date of publication Please see the front page of this research report.

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