Robust Retail Sales Surprise Economists

Includes: RTH, XLY
by: SA Eli Hoffmann

The Census Bureau said this morning retail sales fell 0.2% in April, exactly offsetting March's rise. However, excluding auto sales, April sales were up 0.5% on the heels of a 0.4% gain in March -- well ahead of economist estimates of a milder 0.2% increase.

Sales of building materials gained a robust 1.9%, more than reversing a 1.5% drop in March. Restaurants were up 0.9%.

Economist reactions were almost universally positive. (From Reuters and Dow Jones)

  • "In advance of the arrival of the rebate checks, the consumer hit the malls to release of bit of the pent up demand for purchasing after a few months of lackluster sales. This is an undeniably positive development that does set the table for a second quarter that is looking to shape up far better than anyone could have imagined just a few weeks ago." Joseph Brusuelas, Merck Investments
  • "The key here is ex-autos and gas, the number was up a fair amount. So net , I think it's a report that tells you the economy is very weak, but if we are in a recession it's going to be a real short one." Robert MacIntosh, Chief Economist, Eaton Vance
  • "It puts first quarter consumer spending on a much better footing than [one] would have anticipated and with regard to expecting a contraction of activity in the first quarter this kind of argues against that." Keith Hembre, Chief Economist, First American Funds
  • "Outside autos, the spending is certainly above expectations and it seems to be widespread. It's consistent with the Fed on hold for the near-term, and it does suggest growth will be a little stronger in the first and second quarters." Michelle Meyer, Lehman Brothers
  • "Given all of the negative news about the consumer — gasoline prices, home prices, labor market conditions, and availability of credit — the strength in this report is a startling reminder of the resilience of the US consumer. However, as conditions deteriorate and the likely positive effects on spending from the tax rebates over the next few months fade, we expect to see the U.S. consumer retrench." Drew Matus, Lehman Brothers
  • "The resilience of the consumer seen in today’s report is particularly encouraging given that this number largely represents spending that occurred prior to the receipt of the economic stimulus rebates. While it’s conceivable that some spending may have been pulled forward in anticipation of the rebate checks, survey responses and historical experience suggest these outlays occur only after the checks have been received. Given that the Treasury sent out $14 billion in stimulus checks last Friday alone, the strength in the April number will likely pale in comparison to what we see in May." Michael Feroli, JP Morgan
  • "Retail sales were up by 2.6% over the past year, but inflation has been running a bit over 4%. So, in real terms, retail sales are actually down slightly over the past year... So while the report was stronger than expected, it was not strong in an absolute sense." -- Goldman Sachs