U.S. retail sales rebounded in April, Commerce Department indicated Wednesday, snapping a streak of two consecutive monthly declines as consumers took advantage of a firm job market and slowing headline inflation.
April retail sales 0.4% to a collective $686.1 billion, the Commerce Department said, well shy of the Street consensus forecast of a 0.7% gain. The figure is not adjusted for inflation, and includes overall sales of gasoline and other goods that have jump higher in recent months. The March total was revised to a decline of 0.6% from the original estimate of a 0.7% month-on-month decline, the report indicated.
Stripping out the auto sector, April retail sales were up 0.4%, the Commerce Department report noted, while stand-alone sales of gasoline were down 0.8% as prices rose to around $3.66 per gallon on average over month, according to data from the AAA motor club, compared to an average of $3.48 per gallon in March.
The closely-tracked control group number, which excludes autos, building materials, office suppliers, gas station sales and tobacco, rose 0.7%, well ahead of analyst's estimates of a 0.4% gain.
Inflationary pressures have eased notably over the past five months, as well, with the Bureau of Labor Statistics' headline April reading slowing to an annualized rate of 4.9%, the lowest in two years.
"There wasn’t much evidence of a consumer slowdown in the April retail sales report and although the headline number was weaker than expected, it was up from March, and the core numbers were in line with expectations or slightly stronger," said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.
"While debt ceiling drama continues to take center stage, the odds still favor the Fed standing pat on interest rates at its June meeting, although a lot could happen between now and then," he added. "But until there’s more evidence of a sustained economic cool-down—especially in the labor market—investors are likely looking at high interest rates for the foreseeable future."
U.S. stocks were little-changed following the data release, with the Dow Jones Industrial Average down 200 points in the opening minute of trading and the S&P 500 moving 12 points to the downside.
Benchmark 10-year Treasury note yields rose 7 basis points higher to 3.56% following the data release while the dollar index was marked 0.2% lower on the session at 102.411 against a basket of six global currencies. Benchmark 2-year note yields rose 8 basis points to 4.082%.
Retailers themselves, however, have been girding for a pullback in near-term spending as pandemic-era savings run dry and economic growth prospects fade, with the sector leading the pace of layoffs over the month of April with nearly 15,000 job cuts, a 270% increase from the same period last year.
That brings the year-to-date total to around 36,115, according to figures from Challenger, Gray & Christmas.
“Retailers and Consumer Goods Manufacturers are preparing for a tightening in consumer spending, particularly with the Fed’s hike to interest rates in an attempt to control inflation,” said the group's senior vice president Andrew Challenger.
A softer reading of the University of Michigan's benchmark consumer sentiment index last Friday underscored some of those concerns, with the headline number falling more than six points in April to 57.7 points, and long-term inflation expectations rising by 20 basis points to 3.2%.
Data from Bank of America, meanwhile, suggests April spending on debit and credit cards fell 1.2%, the first year-on-year decline since February of 2021, numbers it says are "consistent with positive but weak GDP growth in 2Q 2023 and a mild recession thereafter."
Home Depot (HD), in fact, warned earlier Tuesday that fading demand for home improvement projects, as well as a slump in lumber prices, would cut into its full year earnings forecast following a mixed first quarter update that included a 4.5% slump in same-store sales and a 4.2% slide in overall revenues.
"We also observed more broad-based pressure across the business compared to when we reported fourth quarter results a few months ago," said CEO Ted Decker.
Target Corp. (TGT) will follow Home Depot with first quarter earnings on Wednesday, with investors focused on the group's profit margins following a disappointing 2023 outlook earlier this year.
Target said in late February that first quarter earnings would likely come in between $1.50 and $1.90 per share, with same-store sales ranging from a low-single-digit decline to a low-single-digit increase. The Street is looking for adjusted earnings of $1.77 per share, on revenues of $25.34 billion, with margins likely improving as its inventory position continues to decline and discounts required to reduce it give way to modest price increases.
Margins will also be in focus when Walmart (WMT) winds up the big retail earnings run on Thursday with its March quarter update. The world's biggest retailer has seen its share of grocery sales rise to more than half its overall total, helping same store sales improve notably from last year but reducing the amount of profit it can squeeze from each visit in a low-margin business.
As a result, Walmart is expected to see earnings rise a penny from last year to $1.30 per share, even as revenues jump 5% to $148.54 billion.
Walmart's own forecast for the March quarter sees adjusted earnings of between $1.25 and $1.30 per share, with sales rising between 4.5% and 5%.
