Consumers ‘motoring along,’ seem poised to gain speed

The government said Friday that retail sales climbed 1.3 percent in April — the largest gain since March 2015 — after a 0.3 percent decline in March.

American consumers haven’t quit spending. They may not be doing as much of it in department stores as they once did, but the Commerce Department’s April retail sales data and a consumer sentiment report combined last week to produce some of the best news the economy has received this year.

The government said Friday that retail sales climbed 1.3 percent in April — the largest gain since March 2015 — after a 0.3 percent decline in March.

The University of Michigan said the same day that its preliminary Consumer Sentiment Index for May gained 6.8 points, to 95.8. That was the highest reading since last June. Economists had expected only a slight increase.

Reuters said the government report showed that retail sales rose across all categories in April except building materials and garden equipment. Auto sales had their largest gain in 13 months after slumping in March. Sales at clothing stores climbed the most since May of last year.

Excluding cars, gasoline, building materials and food services, retail sales climbed 0.9 percent in April after an upwardly revised 0.2 percent gain in March.

“Reports of the consumers' demise appear to be premature," Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pa., told Reuters.

Diane Swonk, CEO of DS Economics, told CNBC that “people are understanding that department stores aren't where we're shopping anymore."

“The consumer is still strong,” she added. “They're motoring along. Vehicle sales are strong, as well. They never left. The issue, I think, is the underlying economy. It's a change in the structure of the economy and a change in how we do things."

There have been recent signs that consumer spending was poised to rise. The previous week, the Federal Reserve said consumer credit rose by a seasonally adjusted $29.67 billion in March from the prior month. That was the fastest pace in more than a decade.

And although the economy added what was seen as a disappointing 160,000 jobs in April, there was a 2.5 percent increase in wages from a year earlier in the Labor Department’s report and an increase in the average workweek for private-sector workers.

In short, Americans have been earning more, and the appetite for spending that rising pay can generate seems to be fueling more buying on credit.

The stock market, however, remains cautious. Weak earnings reports last week from major retailers proved more important to stock investors than Friday’s retail sales report. All three major indexes fell on Friday; the Dow Jones industrial average and the Standard & Poor’s 500 index were lower for the full week for the third week in a row and the Nasdaq composite index closed lower for the fourth week in a row.

This week we’ll learn what increased spending is doing to the Consumer Price Index. The April reading is due today, and economists’ consensus forecast is for a gain 0f 0.3 percent, up from 0.1 percent in March. Core CPI is expected to rise 0.1 percent.

Reports today on housing starts for April and Friday on home resales for the same month will show whether consumers are stepping up to make larger purchases than those the retail sales report reflects. Economists expect gains in both categories.

On Wednesday the Federal Reserve’s Federal Open Market Committee will release the minutes from its April 26-27 meeting. Any sign of rising inflation in the consumer price report this week will eventually weigh on the Fed, which has been taking a cautious stance on interest rates.

“The April FOMC minutes … are likely to strike a more balanced tone than the dovish meeting statement. This is because various FOMC participants have made comments over the past several weeks emphasizing policy flexibility and the Fed’s expectation that output growth will rebound after a soft first quarter,” Joseph Lavorgna, chief U.S. economist at Deutsche Bank, said in a note quoted in a MarketWatch story.

We know the weather is getting warmer as summer approaches. Odds are getting better that the economy will heat up, too.


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