Upturn in retail sales would be good news for Q2 growth
If the economy is going to accelerate in the second quarter, as many economists expect, it will likely be consumers who are pressing the pedal. This week’s report on April retail sales will provide the first snapshot of household spending this quarter.
The week’s reports also will reveal whether inflation bounced back from an unusual decline in March and the underlying dynamics of the labor market.
The Labor Department on Friday reported a robust 211,000 job gains in April, but March’s payroll additions were revised down to an even weaker 79,000 from 98,000. Many economists are writing off the poor March showing as a weather-related blip. Labor’s Job Openings and Labor Turnover Survey for that month, due out Tuesday, could shed some light on what was going on by peeking beneath the job totals. Job openings, for example, increased by a healthy 118,000 in February to 5.7 million. Another solid increase in openings will show that demand for workers was strong in March, further confirming the feeble rise in employment was an anomaly.
Retail sales got off to a slow start this year and fell 0.2% in March, but most economists blame a pullback in previously torrid auto sales and a drop in gasoline prices. A core measure of sales — which excludes autos, gasoline and other volatile items — bounced back in March after weakness the prior month, rising 0.6%. Economists estimate the Commerce Department will report Friday that total retail sales rose a healthy 0.6% in April and the core measure increased 0.4%.
Inflation generally has been trending higher, but the consumer price index fell 0.3% in March, the most in two years. Even core inflation, which strips out volatile food and energy costs, dipped 0.1%, the first drop in seven years. If prices continue to fall or stagnate, it could derail the Federal Reserve’s plans to raise interest rates twice more in 2017 following two hikes since December.
Yet economists are chalking up the March retreat to one-time factors. Gasoline prices, which had been climbing, fell 6.2%. And the Labor Department changed the way it measures wireless phone service prices, leading to a 7% decline in that category, Nomura economist Lewis Alexander says. Economists reckon Labor will report consumer prices overall and the core measure each rose 0.2% in April, leaving annual increases at 2.3% and 2%, respectively.
If prices continue to fall or stagnate, it could derail the Federal Reserve’s plans to raise interest rates twice more in 2017.