Retail Sales Rebound Hints at Improving U.S. Economy

Retail sales in America posted a surprising jump, as consumers are feeling more comfortable about opening their wallets.  Retail sales rose 1.4% on a month-over-month basis in April after falling 0.3% in March on a seasonally adjusted basis. Sales also rose 2.7% on a year-over-year basis, with non-store retailers seeing a 10.2% gain on a year-over-year basis.

That jump helped to boost overall retail sales from February to April, which saw a 2.8% year-over-year gain.

Retail sales in America posted a surprising jump, as consumers are feeling more comfortable about opening their wallets.  Retail sales rose 1.4% on a month-over-month basis in April after falling 0.3% in March on a seasonally adjusted basis. Sales also rose 2.7% on a year-over-year basis, with non-store retailers seeing a 10.2% gain on a year-over-year basis.

That jump helped to boost overall retail sales from February to April, which saw a 2.8% year-over-year gain.

The four-month rolling year-over-year growth was mixed in various sectors. While low energy prices caused gas station sales to fall 11% year-over-year, building material and gardening equipment saw a 9.7% boost and was the top performing sector. Health and personal care stores (up 7.1%), furniture and home furnishing stores (up 5.6%), and sporting good, hobby, book and music stores (up 7.4%) saw a strong boost.

In an indication that Americans are eating out more, which indirectly indicates rebounded consumer confidence in the broader economy as a whole, food service and drinking places saw a 7.4% year-over-year bump in sales over the period.

Consumer Confidence

A second indicator of growing American optimism came from the Reuters and University of Michigan consumer sentiment survey, which saw its index jump 7.6% on a month-over-month basis and 5.6% on a year-over-year basis, far above economists’ expectations.

The survey’s chief economist, Richard Curtin, identified low inflation and low interest rates as drivers of economic activity. As Americans see low debt costs and weak price growth, they remain confident to purchase more and to spend on more discretionary and big-ticket items. Jobs were also a factor, as headline employment remains low despite recently disappointing jobs growth.

“Consumer sentiment rebounded in early May due to more frequent income gains, an improved jobs outlook, and the expectation of lower inflation and interest rates,” Curtin said.

He also noted that lower-income and younger households were driving the confidence, indicating that there may be improvements on the lower end of the economy. “The largest gains were recorded among lower income and younger households, although the gains were recorded among all income and age subgroups as well as across all regions,” Curtin noted.

Curtin also said, however, that the uptick in sentiment masks weakness in the Index of Consumer Expectations. This addresses consumers’ hopes for the future, which can drive their future spending habits. “To be sure, the data still indicated the negative impact of uncertainty about future economic policies associated with the Presidential election, but its overall impact was overwhelmed by favorable economic developments,” he said.

While the data is good, Curtin urges caution in changing forward expectations for the economy as election uncertainty may weigh on the economy in the future. “It is too early to judge the potential impact of the election on consumers’ expectations, and one month’s rebound in consumer confidence is insufficient,” Curtin said.