Sales advance as retailers eye a stronger 2nd quarter

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Retail activity improved again in April, helping to reinforce the idea of stronger consumer spending in the 2nd quarter.

The Census Bureau reported this morning that total retail sales rose 0.3% in April from March’s levels, continuing to rebound from early-year struggles.  This falls in line with consensus expectations and puts retail growth 4.7% higher than at this point last year.

 Retail sales grew 4.7% from last April

Retail sales grew 4.7% from last April

While April’s gain was not as large as the upwardly-revised 0.8% growth registered in the previous month, the details of this morning’s report showed broad-based health in the retail sector. Of the 13 major industries within retail, 9 reported growth in April, led by particularly large gains in clothing, furniture, and nonstore (mostly online) sales. Gasoline prices climbed to the highest level since 2014 in April, helping to fuel the 9th consecutive monthly increase in gas sales in the economy.

More gains ahead for freight markets

The results from April reaffirm expectations of stronger retail growth during the 2nd quarter. Retail activity sputtered at the start of the year, as poor weather and a post-holiday/hurricane season spending hangover helped restrain sales growth in January and February.

Conditions for retail sales have been healthy throughout the year, however, as solid job growth and strong income gains continue to support spending. As such, the weakness in retail at the start of the year was always viewed as a temporary lull, and it was only a matter of time before things began to normalize and consumers opened up their wallets.

This is good news for freight markets, as retail spending helps bolster transportation demand. Growth in retail spending forces inventory turnover and replenishment in the economy, which boosts demand for the movement of goods from domestic manufacturers or ports through the supply chain. In addition, the strength in online retail sales helps drive the need for last mile residential deliveries in the economy.

Behind the Numbers:

Today’s results are just another sign that US consumers will do more for growth during the 2nd quarter. GDP results at the start of the year were hampered by the slowest pace of consumer spending growth in years, and an actual decline in spending on goods in the 1st quarter. With business investment growth likely to stay solid and consumers contributing more, the economy appears poised for better growth overall in the 2nd quarter.

Gas prices have reemerged as a legitimate issue over the past couple of months, however. At the start of the year, much was made about the tax cuts passed by the current administration and the impact these would have on the economy overall. Certainly, businesses look like they have benefited, with at least some of the money saved being steered toward investment spending in the economy. But most of the gain that households got from tax cuts has likely largely been eroded by higher gas prices, particularly for lower and middle-class households. So, while fundamentals look strong and retail spending will probably see healthy growth going forward, don’t expect much of a boost from tax savings.

 Ibrahiim Bayaan is FreightWaves’ Chief Economist. He writes regularly on all aspects of the economy and provides context with original research and analytics on freight market trends. Never miss his commentary by subscribing.