Retail Sales Seesawing In 2019

Retail sales in the U.S. declined in April, according to the latest figures released by the Commerce Department. Retail sales were down 0.2 percent in April, following an unexpectedly large 1.7 percent jump in March (an upward revision of the 1.6 percent increase originally reported).

It is the latest of conflicting economic data points that have reportedly left economists struggling to explain the mood of American consumers in 2019. January saw sales on the increase, followed by a drop-off in February, then the surge in March and now April’s stumble. The seesaw action, as explained by the experts, represents Americans holding back in their spending — despite recent jobs figures and data that indicates modest wage gains.

Retail sales represent about one-third of consumer spending, which itself represent about two-thirds of the U.S. economy. Consumer spending as a whole — which also includes spending on services — saw it largest increase in nearly a decade in March, with smaller gains in the two prior months. The economy, as a result, grew by an annual 3.2 percent as of Q1,  but consumer spending grew at a modest pace and was uncharacteristically not a primary driver of that growth.

Moreover, the weakness in sales figures last month indicates that consumer reluctance is pretty wide-ranging. Clothing stores saw sales drop 0.2 percent, while garden and supply stores logged a 1.9 percent drop despite it being gardening season. Internet retailers and pharmacies also took a 0.2 percent hit. Electronics stores were down by 1.3 percent.

One category did see a jump, though one that is not likely to fill many with delight. Sales jumped 1.8 percent  at gasoline stations, driven by increased gas prices.

The sales report dragged major U.S. markets down before the opening bell Wednesday (May 15). U.S. retail sales unexpectedly fell in April as motor vehicle purchases slumped, government data showed on Wednesday.

A slowdown was expected in these results — the 1.7 growth last month almost guaranteed it. But analysts, looking at the total U.S. economic picture, were expected that to be a slowdown in growth in the 0.1 percent range, not a decline. And, given what appears to be an escalating situation between the U.S. and China over tariffs, there are concerns that retail and spending slowdowns might get worse before they get better. The latest retail figures also followed another round of data from the Fed that demonstrated U.S. factory production continuing to fall in April for a third time in four months with a broad decline led by weakness in machinery and motor vehicles.

Other, more optimistic voices believe that strong economic fundamentals will keep growth positive through the second and possible third quarter. Spending is not what they would expect, however, the lowest unemployment rate in 50 years combined with consumer wage increases will be enough to stabilize growth.

“Given strong job gains and faster wage growth, spending trends from consumers should be faster,” said Chief Economist David Berson of Nationwide Economics. “We expect better readings from retail sales in coming months as the positive labor market trends feed into consumer activity.”

Stephen Stanley, chief economist at Amherst Pierpont Securities, mostly concurred, noting the retail data was “a bit of a downer for the near-term economic outlook” but likely does not present a big picture problem as of yet.

Moreover, given recent patterns in the retail sales figures, it might not be unreasonable to suspect a “powerful bounceback in May” is coming.

Investors, however, did not seem to love the combined retail sales softness combined with the ongoing uncertainty over tariffs, as stocks spent much of Wednesday trending down.