Parsing the 0.4% Increase in Retail Sales

The increase was below consensus; however, core readings showed strong increases.

Advanced retail sales estimates for April came out, showing a 0.4% increase over March. It was a bit of a good, bad, and unknown results.

The unknown part comes from the common problem with sales data from the Census Bureau. The statistical analysis uses a 90% confidence interval, an unusually broad one that happens to cross the zero line. As the Census states, “There is insufficient statistical evidence to conclude that the actual change is different from zero.”

The numbers were “adjusted for seasonal variation and holiday and trading-day differences but not for price changes.” So, an increase, if it happened, could be due in part to inflation.

The bad and good parts are explained by Nationwide Chief Economist Kathy Bostjancic in an emailed note. “While the headline advance in April retail sales of just 0.4% came in softer than the consensus forecast of 0.8%, the core readings posted strong increases,” she wrote. “Retail sales excluding auto and gas were up 0.6% and impressively the key retail control figure (excludes autos, gas, and building materials) jumped 0.7%.”

Even with core inflation up 0.4% in April, “the core measures indicate that consumers regained momentum at the start of Q2,” she continued. “Not surprising given the expected pop in personal income gains in April stemming from the solid increase in employment and 0.5% uptick in average hourly earnings.”

Quincy Krosby, chief global strategist for LPL Financial, went a little further in an email. Saying that the figure was a disappointment, he wrote, “Retail sales, coupled with a disappointing earnings report from Home Depot, suggests that the U.S.  consumer is becoming increasingly careful.”

More optimistic was Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “Retail sales came in strong again showing how the consumer isn’t showing any signs of slowing down and that the recession many are forecasting is farther into the future than anyone would expect,” he wrote. “However, there are many risks to the economy and markets ahead: the debt ceiling standoff, the ongoing issues with the regional banks and a potential for a commercial real estate bust.”

It doesn’t seem like anywhere near enough to convince the Fed to cut rates, which would potentially rescue many CRE properties facing near-term refinancing at interest figures high enough to become a challenge.