Retail Sales Unexpectedly Advance 0.1 Percent, Details Stronger

At first blush, retail sales posted a seemingly-anemic gain 0.1 percent gain in April after dropping a revised 0.5 percent in March, a bigger drop than the 0.4 percent decline originally reported. Expectations were for a 0.3 percent drop. The U.S. Census Bureau announced Monday that advance estimates of U.S. retail and food services sales for April, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $419.0 billion, 3.7 percent above April 2012. Without auto sales, which rose 1.0 percent, retail sales fell 0.1 percent. However, the weak headline was due to falling gas prices and lower sales of food purchased at grocery stores. Gasoline sales fell 4.7 percent, while food and beverage store sales edged down 0.8 percent. Other categories, including many discretionary spending categories, posted better results, reversing last month's weakness. The figure used to calculate gross domestic product, which excludes autos, gasoline and building materials, climbed 0.5 percent after a 0.1 percent increase in the previous month. The data for March and February were revised up for this category. Sales at general merchandise stores rose 1.0 percent following a 0.7 percent decline in March. This is the one of the largest categories of spending after grocery store and auto sales. This includes the sub-category of department stores, where sales advanced 0.3 percent. Department store sales in March recorded a 0.5 percent drop. Still, spending at department stores is 3.6 percent below last year's level. Other, smaller categories indicated consumers are still shopping somewhat on discretionary items. Electronic store sales, for example, advanced 0.8 percent, though this did not make up for the 1.9 percent drop in March. And electronic store sales are only 0.4 percent higher than a year ago, while spending over the past three months is 1.3 percent lower than in the three months ending in January. Thus, spending in this category hasn't demonstrated significant strength. Consumers did not increase their spending on furniture, where sales were flat after a 1.1 percent gain, though are 3.9 percent higher from a year ago. Clothing, however, saw sales climb 1.2 percent after gaining 0.7 percent in March. Shoppers also spent a bit more on sporting, hobby, book and music stores. Focusing on just bricks-and-mortar stores can lead to a misleading picture for some spending categories that are increasingly done online. Non-store retailers, which include web merchants, advanced a strong 1.4 percent, and are up 15.4 percent from a year ago. Thus, this can explain softness in other categories, such as electronics and book and music store sales. And consumers again seem to have favored eating out in April, with restaurant and bar sales rising 0.8 percent while food purchased for at-home consumption fell by the same amount. This continues a trend also seen last month, though to a lesser degree. To the extent that consumers are spending more on dining out, that indicates a greater comfort to spend more, despite the end of the payroll tax cut and other associated worries. These spending patterns correspond to a more optimistic consumer. Consumer confidence, as reported by The Conference Board, rose notably in the past month, especially for the important Expectations Index. The headline increased 6.2 points to 68.9, while the Expectations measure surged to 73.3 from 63.7. Lynn Franco, Director of Economic Indicators at The Conference Board, said, “Consumer Confidence improved in April, as consumers' expectations about the short-term economic outlook and their income prospects improved.” Thus, even with aggregate wage and salary income falling by 0.2 percent per the non-farm payroll report in April, consumers still increased their spending, when measured outside gasoline and food store sales. They are focused more on the future, as the proportion of consumers expecting their incomes to increase rose to 16.8 percent from 14.6 percent, while those expecting a decrease declined to 16.0 percent from 17.7 percent, per the Consumer Confidence report. This marks an important shift, where more consumers now expect their incomes to increase vs. those that expect incomes for fall. It does appear that consumers are indeed a bit more confident about the future, and worries about a consumer pullback have not been fulfilled, at least so far.