The expected spring bounce in consumer spending failed to materialize last month, but all hope for the second quarter is not lost.
An extremely tight labor market and rising wages did not translate into higher consumer spending in April, with retail sales slipping 0.2 percent compared with the previous month, according to new data from the Commerce Department. Economists polled by Reuters had penciled in a 0.2 gain.
The less-than-rosy figures could not be blamed on volatile items like automobiles or sales through gasoline stations since sales were still down 0.2 percent when those categories were removed from the picture. Apparel and clothing accessories stores also saw sales fall 0.2 percent, although department stores bucked the trend with a 0.7 percent sales gain. Online and other nonstore sales were down 0.2 percent.
Since December, the official numbers have painted a confusing backdrop, which some analysts have blamed on the partial federal government shutdown muddling data collection.
December should be the strongest month of the year as consumers stock up on holiday gifts, but sales dropped 1.6 percent, while in January, which is usually a pretty somber month, retail sales swung back, only to fall again in February, confounding Wall Street’s hopes for a rise. Continuing the hair-raising ride, they were up in March.
“The retail sales data have been a thrilling roller-coaster ride since the federal government shutdown….Unfortunately, as a result, it has been difficult to get a handle on the underlying health of the consumer,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.
According to Stanley, “relatively normal” monthly results in April, May and June would be sufficient to produce a very strong result for real consumer spending given the massive lift in March, so the modestly softer‐than‐expected April retail sales figures “are a bit of a downer for the near‐term economic outlook.”
But all is not lost as he added that if the seesaw pattern persists, it would imply a powerful bounce back in May.
Also on the optimistic side was National Retail Federation chief economist Jack Kleinhenz. He said slower tax refunds and weather may have been key factors impacting April’s numbers and that the fundamentals remain positive.
“Despite there being a lot of volatility in the data from month to month, the long-term comparisons look good and the three-month average in particular is getting stronger. We think we remain on track to meet our projections,” he said.
The NRF is projecting that retail sales will increase between 3.8 and 4.4 percent to more than $3.8 trillion in 2019.
There is a big risk on the horizon, however, as President Trump has threatened to further escalate the trade war and unleash additional tariffs covering almost all Chinese imports, totaling around $300 billion, if a deal cannot be reached in the international dispute. He has already tasked officials with beginning the paperwork and analysts at Cowen have forecasted it could come into force around the end of the summer.
Business groups have warned that many companies will have little choice but to pass the cost of higher tariffs onto the consumer by raising prices.