There were a few important reports on the U.S. economy released this morning. First, data from the U.S. Census Bureau showed that advance estimates of retail and food services sales in April totaled $474.9 billion. That was a 0.4 percent increase from March’s upward-revised print but slightly worse that economists had anticipated. The gains were broad based last month, with sales at nonstore retailers (Amazon) continuing to be a standout. Core retail sales, which exclude automotive and gasoline sales, lifted by 0.3 percent in April, also disappointing forecasts but again from an upward-revised March reading. Altogether, the solid gains seen in both headline and core retail sales last month support the argument made by Federal Reserve officials last week that the first quarter weakness in consumer spending was transitory.
Next, a report from the Bureau of Labor Statistics (BLS) showed that household inflationary pressures firmed last month, with the consumer price index (CPI) for all urban consumers rising by 0.2 percent. That was in line with expectations and a big turnaround from March’s 0.3 percent decline. Last month’s headline increase was driven by large gains in the costs of shelter, energy, tobacco, and food but “core” CPI, which excludes some of these volatile components, still lifted by 0.1 percent in April. All of this suggests that firms are able to hold onto some pricing power even as household spending grows, good news for business owners given yesterday’s report on wholesale inflation. On a year-over-year basis, though, both headline and core CPI measures cooled considerably in April. Since that disagrees with the latest PPI data, the release of the PCE deflator later this month will likely be a deciding factor in whether officials at the Federal Reserve will hike interest rates at their June monetary policy meeting.
Elsewhere, the consumer sentiment index from the University of Michigan rose to 97.7 in the first half of May, better than expected and fractionally below the cycle high hit in January. Under the hood, surveyed Americans’ views of current economic conditions were unchanged this month but outlooks on the future improved. Forty-four percent of consumer respondents said that they are confident their financial prospects will improve in the year ahead, likely helped by continued strength in the labor market. Further, reported buying plans for durable goods rose to a 10-year high in May, and surveyed consumers had the most favorable view on the housing market (from a seller’s perspective) in more than a decade. Richard Curtin, director of the consumer survey, added that “The partisan difference in the Expectations Index is still huge, but the gap between Democrats and Republicans narrowed slightly … mainly due to Democrats expressing diminished fears of an immediate recession and lessened concerns about personal financial setbacks. Overall, personal consumption expenditures are expected to advance at about a 2.3% pace in 2017.”
Sources: Econoday, Bloomberg, Twitter, ZH, U.S. Census Bureau, U.S. DoL, University of Michigan, FRBSLPost author: Charles Couch