Resilient Consumption

Retail sales in April were strong. After the very good news from the labour market, it is additional evidence that the US economy avoided the spring swoon this year. Strong job creations seem to have offset the drag on households’ disposable income from the rise in the payroll tax hike earlier this year. GDP growth is set to surprise (most, but not us…) on the upside

Retail sales were up 0.1% in April with widespread strength, as only few retailers saw their sales declining over the month: gas stations (-4.7%), food and beverages (-0.8%) and health and personal care (-0.1%). Sales of everything else were up, from building materials (+1.5) and cars (+1.0%) to clothing (+1.2%).

Excluding volatile items (cars), price-sensitive sectors (gas) and building materials (which are part of residential investment and not private consumption in US national accounts), retail sales were up a very solid 0.5% in April.

In short, the soft patch did not spread beyond March. On a 3-month annualised basis, retail sales were up 4% in April, with the core index up 4.2%. Were core retail sales to grow at a monthly pace of 0.4% in both May and June (the average rate recorded between February and March), the Q2 performance would be in line with the Q1 one.

Today’s data are then consistent with a steady GDP growth over the first half of 2013.

Admittedly, today’s report is the very first set of hard data covering April (and thus Q2). Later this week, data for prices and more importantly industrial production in April will be released. On top of that, the New York and Philadelphia Federal Reserve Banks will publish survey results for May.

However, the April labour market report was strong enough to support our optimism, while the recent declining trend in weekly initial claims keeps on illustrating an improvement in labour market conditions.

It may still be too soon to be sure that the US economy did not suffer from a spring swoon this year. It is however more likely with the first April data that the slowdown was very limited in both magnitude and length.

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