While the US retail sales posted a record monthly gain (+17.7%, 8% exp.) in May, the US foreign and domestic trade appears to be too slow to adjust to the unexpected jump, shows freight data for May. Cass Freight Index sluggishly bounced from 0.92 points in April to 0.94 points in May. The average value in May over the past three years was 1.24 points:
The situation with ground transportation isn’t better: YoY decline of the rates was even larger than in 2009. Demand in trucking industry, judging by the uptick of the corresponding index in May, remained very weak:
If we look at the volume of US imports and exports, we can see that the April collapse pretty much corresponds to the April drop in freight indices:
Since US foreign trade data for May has not yet been released, we may use the freight data for May as a leading indicator, which suggests that US export-import volumes probably did not rebound in May.
If so, the release of “pent-up” consumer demand in May could draw down firms’ inventories of finished goods. Combination of reducing inventory and pent-up demand can prompt firms to start raising prices causing inflation. For this reason, expectations of accelerating consumer inflation in May-June may have solid grounds. With the recent pledge of the Fed to keep interest rates low for a long time, first signs of inflation can create unease about trajectory of real interest rates hence demand for Gold can start to increase.
In the analysis of May retail sales data let’s also take into account the fact that it was the low April base that contributed to the occurrence of the big MoM jump, in absolute terms, retail sales in May are lower by about 50 billion than in pre-crisis levels, which is a significant “lag” from the normal level. In annual terms, the decline in retail sales in May amounted to 6.1%.
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