Advance retail sales were much better than anticipated in April, rising 1.3%, following a 0.3% decline in March and compared with expectations for a 0.8% increase. Sales are now 3.0% higher than a year ago. Excluding autos, sales were also better than expected, rising 0.8% after a 0.4% rise in March. Sales for this category are now up 3.0% from one year ago. Motor vehicle and parts sales increased by 3.2%, also after a 3.2% decline; they are now 3.1% higher than a year ago.
The most meaningful measure of retail sales activity excludes gasoline and auto sales (to negate the volatile influences of gasoline prices and auto financing incentives). Sales at gasoline stations increased by 2.2%, following a 3.1% rise in March, and are 9.4% lower than a year ago. The strength in core sales was mainly focused at nonstore retailers (2.1%), miscellaneous (1.5%), and apparel (1.0%). Any weakness in the month came from a 1.0% decline in sales at building material and garden equipment stores. Excluding gasoline and autos, retail sales were 0.6% higher on the month, following a 0.2% rise in March and were 4.4% higher than a year ago. Lastly, non-auto, non-gasoline station sales, less building and gardening equipment, were 0.8% higher in the month and 4.0% higher annually.
There is little doubt that consumer spending has been patchy and weaker than most had anticipated given the fall in the price of energy and the stronger employment data over the last few quarters. The rise in the savings rate despite the energy price ‘tax cut,’ suggests that consumers are still cautious of the economy’s performance. April’s retail sales report was helped at the headline level yet again by a rebound in auto sales, however, after peaking at a 10-year high in September, auto sales have been slowly starting to drift lower; other areas will need to take up the slack. Gasoline prices, meanwhile, have finally started to turn upward and sales at gas stations are noticeably improving, with two consecutive monthly increases following monthly declines since June 2015. At the core level (excluding the volatile auto component), sales have been firmer. Whereas consumer spending at the start of the year was expected to represent the best scope for an upside surprise this year, expectations for this have since dimmed. Much of this recent softness may also have been due to the warmer weather, which has left retailers stuck with very high levels of inventories. Overall, this was a helpful report, but there was little here to suggest that the pace of consumption has changed dramatically. Furthermore, while this will add to the second quarter’s GDP, it also re-emphasises that there is little imminent need for another interest rate increase.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.