Sales Soft After March Surge, Business Sentiment Strengthens, Inventories Sag
- April Retail Sales were essentially unchanged, gaining 0.1 percent after a strong March.
- Ex-auto Retail Sales were unchanged for the month, weighed down by electronics and appliances.
- The National Federation of Independent Business’s Business Optimism Index climbed in April to 95.2.
- Business Inventories increased in March by 0.4 percent, as business sales gained 1.0 percent.
Total retail sales for April gained just 0.1 percent, despite reasonably solid performance from most major categories. We expected auto sales to be a drag on the headline number. Unit auto sales for April dipped from March’s rebound rate of 16.4 million, down to 16.0 million. However, retail sales of autos revved up by 0.6 percent in April, which ended up supporting the headline number. Most other categories were good. Department store sales fashioned a 1.8 percent gain in April. Clothing store sales knitted a 1.2 percent increase for the month. Gasoline station sales were pumped up by 0.8 percent. Health and personal care sales beautified by 0.6 percent. The big drag on headline sales came from electronics and appliance stores which blew a fuse, declining by 2.3 percent in April. We expect to see solid consumer spending numbers this spring and summer. House prices are still going up. Job creation is back on track. Consumer confidence is improving. Recent record-breaking performance in equity markets is helping. Credit availability is improving. With consumer spending back on track, drag from fiscal tightening ending and support from a synchronized global expansion, we expect U.S. GDP to improve significantly from its weak Q1 performance. Increasingly, the U.S. economy is showing the characteristics of a mid-cycle expansion.
The National Federation of Independent Business’s Small Business Optimism Index surged in April, up to 95.2, its strongest reading since October 2007. The April surge continues its zig zagging, but overall upward trend, since bottoming out at the end of 2008. NFIB participants increased their employment by an average of 0.07 workers per firm in April, for the seventh positive month in a row. This is the best string of gains for the NFIB index since 2006. Total business inventories were up by a modest 0.4 percent in March, consistent with the weaker Q1 inventory numbers in the GDP report. Business sales for the month were up by a solid 1.0 percent. The total business inventories/sales ratio for March was unchanged at 1.30. The shallow upward trend in the inventory/sales ratio that we see from early 2011 to the present suggests that we may not be all the way through the inventory correction that we saw in Q1. We expect to see a little more drag from inventories in the current second quarter, keeping headline real GDP growth in the 2.5 to 3.0 percent range. We forecast 2.8 percent real GDP growth for the quarter, strong, but still shy of the more optimistic estimates.
Market Reaction: Equity markets are continuing yesterday’s rally. The 10-year Treasury yield is down to 2.62 percent. NYMEX crude oil is up to $101.14/barrel. Natural gas futures are down to $4.43/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Retail Sales 05-13-14.