Retail Sales Grow 0.5% in April, Previous Months Revised Up, Another Revision in the Cards
The government's estimates of retail sales for April fell short of expectations for growth of 0.8% as the first official estimate of retail sales came in at 0.5%. Based on past upward revisions, I think the consensus estimate may prove closer to the mark than this month's initial government report. Last month's official retail sales figure was revised up, to 0.9% from 0.4%. That was just off by 125%!
Since that March figure was included in the first quarter's GDP forecast, my guess is that 1.8% real GDP growth estimate is likely to be boosted by at least a tenth or two. Based on the fact that most of the past retail sales reports have had to be revised upward and the fact that the International Council of Shopping Centers reported very strong reports for April, I strongly suspect this month's official number will also be subject to upward revision.
Consumers Spend More Time (and Money) at Home in April
The April report, if it stands up to revisions, was characterised by consumers staying at home. Restaurant sales were down 0.1% this month, and grocery store sales were up a stunning 1.5% as it would appear that consumers chose to eat at home instead of going out this month. Nonstore retailers--mainly online retailers--saw sales increase by a full percentage point. Gasoline station sales increased 2.7%, but according to the consumer price index, gasoline prices jumped a higher 3.3%, indicating that the number of gallons of gasoline purchased went down in April. Higher gasoline prices are beginning to change behaviour.
Trade Deficit Shows Modest Increase Due to Oil Imports and Oil Prices
While the trade balance increased to $48.2 billion for March compared with $45.5 in February and close to a recovery high, there was some good news lurking below the headlines. A combination of temporarily higher quantities of oil and sharply higher prices pushed oil imports up by about $6 billion. Looking at the data excluding petroleum products (both exports and imports--yes, we actually export some oil products), the deficit has improved in recent months.
Given that prices have fallen recently and that US drivers have begun to cut back on driving, I suspect that oil may not be as big a drag in the months ahead. The (excluding oil) data above seem to indicate that a weaker dollar is beginning to have positive effects on our trade deficit. Capital goods and agricultural goods seem to be leading the way, especially in Asia and with our North American trading partners. The deficit (excluding oil) is now at a relatively modest 1.3% of US GDP. Now if only the US could begin to work that oil deficit down a little faster.
Housing News and Manufacturing Data on the Docket
This week brings the industrial production report for April, and I believe the consensus forecast of 0.4% growth for April will be in the ballpark or perhaps just a bit low. This still represents some slippage from the 0.8% recorded in March. The results for utilities tended to inflate the March statistic. On the other hand, the April PMI barely budged compared to March, so the non-utility-related slippage should be minimal. The only large wildcard is auto production. While the recent employment report indicated that things were going well through April 16, some of the US plants of Japanese auto manufacturers began to feel the effects of parts shortages from Japan. There may even have been a few layoffs related to these shortages in the back half of the month. So if anything odd shows up in this week's headlines, auto production would be the first place I'd check.
Not Looking for Much Change in Regional PMI Data
Looking ahead to May's data, two regional purchasing managers' reports are due this week: the Philly Fed and the Empire State. The consensus forecast is for both of these reports to be relatively flat with the prior month with readings of around 20 (zero represents no growth, positive numbers represent growth). Lately these reports have been quite volatile and often contradict each other, so I wouldn't read much into them unless the moves in both indexes were large and in the same direction.
Housing Starts: Very Modest Improvement Forecast
Housing starts surprised on the upside in March as weather improved sharply from February to 549,000 units. I really wouldn't expect a lot of improvement in April, based on a modest decline in rail shipments of construction-related materials last month. I am not so sure the weather improved quite as much as it did in March either. I continue to believe dramatically improved housing starts remain a 2012 event. (Starts bottomed at around 500,000 units and peaked at over 2 million units during the housing boom of the 2000s.)
Existing Home Sales Due for a Lift
Given a 5.1% increase in pending home sales for March, I suspect that existing home sales will do better than the 2% consensus increase. I believe that sales of 5.3 million (seasonally adjusted annual rate in units), an increase of 4%, is a real possibility. Improved employment data of late also bolster my confidence that April's existing home sales data should look better than March's. A recent National Association of Realtor's report pegged full-year existing home sales at 5.1 million units, a 7%-10% increase from 2010 levels, a period that included special housing tax credits.
