Retail sales barely nudged higher in April despite a stronger than expected lead in from March, casting doubt on the idea that the economy will accelerate in the second and third quarters.
Sales gained just 0.1 percent on the month according to the Commerce Department, one fourth of the median 0.4 percent prediction. The March increase was revised up to 1.5 percent from 1.1 percent, the strongest monthly rise four years.
Retail sales excluding automobiles and parts were flat in April belying the 0.6 percent prediction. March’s figure was adjusted up to 1.0 percent from 0.7 percent. Annual sales rose 4.0 percent, down from 4.1 percent in March, but still more than double the 1.7 percent average in January and February.
Consumption was restrained by declines in furniture sales, slipping proceeds from electronics and appliance stores and lower receipts from restaurants and bars. Even sales at non-store retailers, which includes online firms and had been a strong performer in holiday sales, dropped 0.9 percent.
The so-called sales 'control group' whose composition mimics the consumption component of the national GDP calculation fell 0.1 percent in April, well below the 0.5 percent forecast. The April result was revised up to 1.3 perceptron from 0.8 percent.
First quarter U.S. GDP was 0.1 percent annualized and many analysts expect that to become negative when the first revision is released on the 29th of this month. Current estimates are in the -0.6 percent to -0.1 percent range.
The potential problem for second quarter GDP is that the 'control group' representing personal spending averaged 0.31 percent a month in the first quarter. Consumer spending is the largest category of economic activity in the United States accounting for about 70 percent of GDP. If the economy contracted in the first quarter with the 'control group' expanding each month what can be expected in the second quarter if this category shrinks?
Other data such as payrolls, purchasing managers surveys and unemployment claims suggest that the economy is gaining strength.
However, the annual increase in average hourly earnings in the April employment report was just 1.9 percent. Subtract the inflation rate of 1.5 percent and the consumer was barely ahead at 0.4 percent for the year.
The average annual increase in wages for the last year was 2.1 percent a month. Inflation averaged 1.4 percent for the period, leaving wages just 0.7 percent higher. Actual disposable income is yet lower because government taxes and fees have continued to rise.
With millions of long term unemployed out of the job market, a historical low in labor force participation and compensation stagnant it is difficult to see where the hoped for increases in consumer spending will come from. That is not a promising situation for economic growth.
Chief Market Strategist
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