Retail Sales Were Unchanged in April
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Implications: Please feel free to discount the importance of the weak headline for April retail sales, which were unchanged from March, falling short of the consensus expected gain of 0.2%. Sales in March were revised up to a 1.1% gain, the largest monthly increase in a year, and "core" sales rose in April for the 13th time in the last 15 months. We follow core sales because it excludes the most volatile portions of the report (autos, building materials, and gas station sales). Plugging core sales into our models suggests "real" (inflation-adjusted) consumer spending, on goods and services combined, will be up at about a 2% annual rate in Q2, very close to the pace in Q1. However, growth in consumer spending should be stronger in the second half the year. Every one cent decline in the gas prices saves consumers about $3.7 million per day. So, right now, consumers are spending $370 million less a day on gas versus a year ago. Look for those savings to generate higher sales in other sectors in the months ahead. In other news this morning, business inventories increased 0.1% in March, which was less than the consensus expected. Comparing the inventory report to what the government assumed when it released its first report for Q1 real GDP growth, it now looks like real GDP contracted at a 0.9% annual rate in Q1 versus a report two weeks ago that it grew at a 0.2% rate. This is NOT a reason to worry about the economy, though. Due to unusually bad weather, real GDP shrank at a 2.1% rate in the first quarter of 2014 and then bounced back rapidly over the next two quarters. This year, we had not only bad weather in Q1 but also port strikes and a drop in drilling activity, all temporary factors, and expect another rapid rebound in 2015. Meanwhile, on the inflation front, no sign of a problem in the trade sector. Import prices declined 0.3% in April and are down 10.7% from a year ago. The drop is mostly oil, but not all of it; import prices are down 2.7% from a year ago even excluding oil. Export prices declined 0.7% in April, both including and excluding farm products. Export prices are down 6.3% from a year ago.

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Posted on Wednesday, May 13, 2015 @ 11:04 AM

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