By Ben Leubsdorf
Better consumer spending and confidence add to a growing body of
evidence that U.S. economic growth is picking up this spring
following another weak winter.
Sales at U.S. stores, restaurants and online retailers increased
a seasonally adjusted 0.4% in April from the prior month, the
largest gain in three months, the Commerce Department said Friday.
Also, the University of Michigan reported its consumer-sentiment
index rose to 97.7 in early May -- the strongest reading since
January, when sentiment reached a 13-year high.
The reports were a striking counterpoint in a week marked by
dismal earnings reports by brick-and-mortar U.S. retailers like
Macy's Inc., and Kohl's Corp. and Nordstrom Inc., which are
struggling to adjust to a U.S. consumer shift to online shopping.
On Friday, J.C. Penney Co. added to the parade of retailer gloom.
It reported a surprise adjusted profit, but its revenue came in
below expectations and investors yanked the stock down 14%.
Amid these woes, households are still spending, just in
different places.
"We're going to have a nice strong consumer in the second
quarter, and it's not surprising," said Diane Swonk, founder of
consultancy DS Economics. "We've got more income. The labor market
continues to improve."
Forecasters are increasingly confident that overall growth is
rebounding after gross domestic product, a broad measure of U.S.
output of goods and services, rose at a 0.7% annual pace in the
first quarter. The Federal Reserve Bank of Atlanta's GDPNow model
on Friday predicted a 3.6% growth rate in the second quarter, and
Macroeconomic Advisers projected second-quarter growth at a 3.9%
rate. If they're right, it will be the best quarter since the
summer of 2014.
That would be welcome news at the Federal Reserve, which wants
to support a sustainable economic expansion without letting the
economy overheat. Central-bank officials had largely shrugged off
the weak first quarter as a likely one-off. Investors and analysts
think another interest-rate increase is likely at the Fed's next
policy meeting in mid-June, which would be its second this year.
Still, rates remain historically low.
One potential concern for the central bank is the emergence of a
lower trajectory for inflation. The consumer-price index rose 2.2%
in April from a year earlier, the Labor Department said Friday.
That's down for the second straight month from a 2.8% annual
increase recorded in February. When excluding volatile food and
energy costs, annual inflation is growing at the slowest pace since
October 2015.
Early in the expansion, Fed officials worried that low inflation
was a sign of low economic vitality. Now, with the unemployment
rate at the lowest level in a decade, at 4.4%, Fed officials are
more confident the expansion is on track and they are moving toward
gradually raising interest rates.
The economy-wide April gain in retail sales was slightly below
economists' expectations, but March sales were revised up to a 0.1%
increase from an earlier-estimated decline. "If you look at the
revisions, it's actually a very strong report," Ms. Swonk said.
The report highlighted the continuing shift in consumer spending
from traditional shopping malls and storefronts to online
platforms, a trend that has pressured many big-name retailers. In
April, nonstore retailer sales -- a category that includes online
shopping -- jumped 1.4% from the prior month, while sales at
department stores rose 0.2% from March. Over the past year,
nonstore sales rose 11.9% and department-store sales fell 3.7%.
Macy's, J.C. Penney and Kohl's each reported sales declines for
their fiscal first quarters. "We're not banking on a rebound in
consumer spending for the remainder of the year," said Karen
Hoguet, Macy's finance chief, in an interview. The retailer has
experienced nine straight quarters of same-store-sales declines,
but Ms. Hoguet exhorted, "don't count us out. We're not dead."
On the brighter side, the chains noted that business improved in
March and April after a weaker-than-usual February. Penney Chief
Executive Marvin Ellison said sales excluding newly opened or
closed locations turned positive in March and April after "the very
difficult month of February."
Like other retailers, HSN Inc. -- the former Home Shopping
Network -- has seen customer behavior change in recent years.
President Bill Brand said in an interview about half of HSN's sales
now come via the web and mobile devices.
"Maybe fewer people are watching TV, and how they're consuming
content is different than they have in the past," he said. "We've
seen a shift."
Friday's government report on retailing offered an early but
incomplete look at consumer spending in the current quarter; it
excluded outlays on most services including medical care and
housing. It showed sales rose in April at home-improvement stores
and restaurants, but fell at grocery and clothing stores.
U.S. GDP growth has repeatedly weakened during the first quarter
in recent years, which some economists have attributed to
seasonal-adjustment problems.
This year, the first-quarter slowdown in spending reflected a
number of factors. Car sales dropped, Americans spent less on home
heating due to mild winter weather, and some households experienced
delays in receiving tax refunds from the Internal Revenue
Service.
But the lull seemed likely temporary given underlying health in
the economy. Consumer-sentiment gauges jumped following last year's
presidential election and have remained elevated. Moreover,
employers have been adding to payrolls at a clip of about 185,000 a
month this year, bolstering household incomes.
Suzanne Kapner, Eric Morath and Ben Eisen contributed to this
article.
Write to Ben Leubsdorf at ben.leubsdorf@wsj.com
(END) Dow Jones Newswires
May 12, 2017 16:33 ET (20:33 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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