Retail sales increased 0.3% in April according to the advance Census Bureau report – on par with expectations. Better yet, the healthy gain came atop of a blowout upward revision to the March tally, which was now reported as a 0.8% gain – previously 0.6%.
Sales at motor vehicle & parts dealers (+0.1%) did little for the headline, unlike gasoline station sales, which rose by a robust 0.8%. Taken together, the two largely matched the gains elsewhere, with the measure that excludes autos and gas also up 0.3% – just shy of the 0.4% expected.
Building materials (0.4%) had a fairly decent month, but spending at eating and drinking place sales (-0.3%) pulled back for the first time in seven months. Excluding gas, autos, building materials, and food services, the so-called ‘control group’ used in calculating GDP was up 0.4% on the month – also matching the consensus call. Apart for the decline in health store spending (-0.4%) and a touch lower spending at electronics and sporting goods stores (-0.1%), the remaining categories saw gains, with clothing (+1.4%) and miscellaneous stores (+0.9%) leading the pack.
Key Implications
This was a really solid spending report, with little in the way of ‘skeletons’ to be found in the details. The report indicated that consumers have definitely shed the winter blues and were out in full force in April – following up on the surge in activity already seen in March.
While the pullback in spending on discretionary categories, such as sporting goods and restaurants, was not necessarily welcome, the declines were quite negligible and come after months of good gains. As such, we don’t believe this to be signaling a lack of comfort of spending on ‘wants’ instead of just ‘needs’. With everyone who wants a job effectively having it – as the jobless rate fell below 4% in April – and wage gains becoming more pronounced – average hourly earnings rose by an annualized 3.0% in Q1 for instance – there is every reason to expect consumer spending to continue to grow at a healthy pace.
All in all, this report re-affirms our expectations for a bounce-back in consumer spending in Q2 after a weak showing in the first quarter of the year. Spending looks on track to advance by close to 3%, helping along the economy to advance by a similar magnitude. This will be a positive signal for the FOMC, with many members of the committee expecting that the Q1 weakness was transitory. As such, the report further solidifies the expectations for a June rate hike, with at least one other hike (and perhaps two) likely in the second half of the year.
