Retail sales rose a meager 0.1% last month on a seasonally adjusted basis, the smallest monthly gain since December, the Census Bureau reports. The retreat in the growth rate isn’t terribly surprising, given the relatively strong pace in each month during the first quarter. Nonetheless, today’s sales news won’t inspire confidence amid all the renewed worries about the potential blowback for the global ecoomy if Greece leaves the euro and the possibility of rising recession risk in the U.S.
Some economists say there’s still a weather factor at play in the latest retail sales numbers and so it’s not obvious that April’s data is all that damning. “The consumer is holding up,” says Neil Dutta , a Bank of America economist. “The key thing here is to determine to what extent the weather had an effect, and it’s pretty clear if you look at the components there was some weather impact.”
Last month’s fade in consumption may be a harbinger of things to come, or not, but the trend doesn’t look ominous in terms of the year-over-year change. Retail sales jumped 6.4% in April vs. 12 months earlier. That’s down moderately from the pace in recent months, but no one will confuse this rate of growth with a recession.
The concern is that the annual rate of retail sales has been falling, albeit gently, for a year. That may be nothing more than a natural migration to sustainable (i.e., lower) levels after the dramatic rebound from the depths of the Great Recession. Nonetheless, some analysts worry that the downshift has legs and so the outlook is clouded for the consumer-dependent economy.
“Growth is there, but it’s not that convincing,” notes David Sloan, senior economist at 4CAST.
Before we throw in the towel on consumption, let’s consider the possible effects from falling gasoline prices. There’s a lot of chatter this morning about the minimal impact from lower fuel prices on April’s retail sales. Fair enough, but if gasoline continues to trend lower it may boost consumer confidence, which was flat last week but still higher than April’s readings, according to Gallup. Does that suggest that May economic news will be brighter too?
The answer partly depends on how much green consumers spend at the pump. The national average retail price of regular gasoline fell again in the week through Monday to the lowest level since early February, according to the Energy Information Administration. Granted, prices are still high by historical standards and so a mild fall from extremes is hardly a game-changer. But if more declines are coming, there’s a possibility that Joe Sixpack’s consumption may hold up through the summer. On that note, today’s news that the nuclear talks between the United Nations and Iran are “constructive” implies that energy prices may fall further as the geopolitical risk premium in oil retreats.
Lower energy prices generally last month kept consumer inflation flat in April, the Labor Department reports. Meanwhile, retail sales on a real (inflation-adjusted) basis rose on an annual basis last month to a 4.0% rate, the highest since last October.
None of this wipes away the concern that the consumer is wary, but it’s a reminder that it’s premature to yell fire in macro’s theater just yet. There are a lot of moving parts at work these days and it’s not at all clear how key events around the world (and within the U.S.) will play out.
“Greece is peanuts as far as the United States is concerned,” says Uri Dadush, former economic policy chief at the World Bank. “But if Greece leads to the contagion of Spain and Italy, the euro could implode. This is big business for the U.S. We’re talking trillions of dollars in direct and indirect exposure to the European banking sector.”
While the world waits for clarity, let’s see what the rest of the week’s economic reports say before we pass judgment on April. Next up is tomorrow’s update on housing starts and new building permits issued last month, along with April’s read on industrial production. There’s also Thursday’s weekly update on jobless claims and Friday brings word of the Conference Board’s leading index.