Highlights:
- April retail sales rose 0.4% to build on a 0.1% increase (previously reported as -0.2%) in March.
- Motor vehicle sales rose 0.8%, gasoline station sales inched up 0.2%, and building material store sales rose 1.2% after falling 1.7% in March.
- ‘Control’ (excluding motor vehicles, building materials and gasoline stations) sales rose 0.2% following a 0.7% jump in March.
Our Take:
The 0.4% gain in April retail sales was only slightly below expectations for a 0.6% increase and followed an upwardly revised March gain (now reported as up 0.1% versus the previous -0.2%). On balance, spending over the last two months is in line with the view that the slowing in Q1 real consumer spending growth, to just a 0.3% annualized pace, was more the result of ‘normal’ volatility in the data and a weather-related pull-back in utilities consumption than the beginning of a new weaker trend. Strong employment growth, rising wages and consumer confidence, and the still stimulative stance of monetary policy are all pointing to a solid household spending backdrop and the recent data remains in line with our forecast for a 2.8% increase in consumer expenditures in Q2 that we expect will support a 2.9% increase in GDP (following the surprisingly modest 0.7% Q1 gain.) Along with continued improvement in labour markets — the unemployment rate fell to a new cycle low of 4.4% in April — the data will provide reassurance to the Fed that the fundamental economic backdrop remains strong and, if anything, further increases the odds of another hike to the fed funds target range when monetary policymakers next meet in June.
