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 The jump in sales reported by the Commerce Department on Friday is a
boost for the sector that has been hit by sluggish demand. It comes
days after major retailers, including Macy's and Nordstrom, reported
sales tumbled in the first quarter and lowered their full-year
profit forecasts.
"Reports of the consumers' demise appear to be premature," said Joel
Naroff, chief economist at Naroff Economic Advisors in Holland,
Pennsylvania.
Retail sales surged 1.3 percent in April, the largest gain since
March 2015, after dropping 0.3 percent the prior month. Excluding
automobiles, gasoline, building materials and food services, retail
sales shot up 0.9 percent last month after an upwardly revised 0.2
percent gain in March.
These so-called core retail sales correspond most closely with the
consumer spending component of gross domestic product.
Core retail sales were previously reported to have gained 0.1
percent in March. Economists had forecast retail sales rising 0.8
percent and core retail sales gaining 0.3 percent last month.
Though the signs of an acceleration in consumer spending will be
welcomed by Federal Reserve officials, they are probably
insufficient for the U.S. central bank to raise interest rates next
month as inflation remains tame.
A second report from the Labor Department showed its producer price
index climbed 0.2 percent last month after slipping 0.1 percent in
March. In the 12 months through April, the PPI was unchanged after
dipping 0.1 percent in March.
Inflation continues to be restrained by the lingering effects of the
dollar's surge and oil price plunge.
"Today's data materially strengthen the hand of those within the Fed
for a rate increase in June but we remain doubtful as to whether
this view will prevail, barring an especially robust employment
report in early June," said Anthony Karydakis, chief economic
strategist at Miller Tabak in New York.
The dollar rose to a two-week high against a basket of currencies.
Prices for U.S. government debt were trading higher, while stocks on
Wall Street fell marginally.
UPBEAT CONSUMERS
Prospects for consumer spending got a boost from a third report
showing sentiment among households jumped to an 11-month high in
early May, driven by steadily rising incomes, better employment
prospects and low inflation.
The University of Michigan said its consumer sentiment index surged
6.8 points to 95.8 early this month, the highest reading since June.
Sentiment increased among all income and age groups, with big gains
among lower-income and younger households.
As a result of last month's strong core retail sales increase, the
Atlanta Fed raised its fourth-quarter GDP growth estimate to a 2.8
percent annualized rate from 2.2 percent.
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Economic growth braked to a 0.5 percent pace in the first three months of 2016
after expanding at a 1.4 percent pace in the fourth quarter.
But data on construction spending and factory orders, as well as a fourth report
on business inventories from the Commerce Department on Friday, suggested the
first-quarter GDP growth estimate would be raised to a 1.2 percent rate when the
government publishes its revision later this month.
Retail sales have been sluggish in part because the firming labor market has not
generated strong wage growth. Some of the savings from cheaper gasoline over the
past year-and-a-half have been absorbed by rising rents and medical care costs.
Macy's, the largest department chain, said this week same-store sales fell 5.6
percent in the first quarter, and it expected full-year sales to decline 3-4
percent.
Nordstrom reported that sales at stores open at least a year fell 1.7 percent in
the first quarter. It cut its profit forecast for the year to $2.50-$2.70 per
share from $3.10-$3.35.
"Today's report raised some eyebrows given the string of negative commentary
from retailers, but that juxtaposition is a useful reminder that publicly traded
corporations account for a minority of economic activity in the U.S.," said
Michael Feroli, an economist at JPMorgan in New York.
The Commerce Department report showed retail sales in April rose across all
categories, with the exception of building materials and garden equipment. Auto
sales posted their largest gain in 13 months after slumping in March. Sales at
clothing stores increased by the most since May 2015.
Online retailers reported the biggest sales gain since June 2014. Consumers also
spent on sporting goods and hobbies, electronics and appliances, and they
visited restaurants and bars. Building materials and garden equipment sales,
however, recorded their biggest drop since August.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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