Rise in U.S. Retail Sales Ex Autos Beats Market Expectations

U.S. retail sales came as expected in April, declining 0.2%. Sales growth was unrevised in March, showing a 0.2% gain. Excluding the volatile autos component, retail sales rose 0.5%, besting expectations calling for a 0.2% increase.

The decline in overall retail sales was spurred by a 2.8% drop in sales at motor vehicles and parts dealers. However, there were broad-based gains in other components of retail sales. Sales at furniture and home furnishing stores increased slightly, while sales at electronics and appliance stores increased 1.4%. Clothing and accessory store sales advanced 0.7%. Health and personal care store sales increased 0.4%. Gasoline station sales declined 0.4% despite the lofty gain in gas prices. The component of retail sales that goes into the GDP add-up - retail sales excluding automotive and building material and garden supply stores - rose 0.3%.

Today's retail trade data would be consistent with flat real consumption growth. However, the April results were probably not affected by the fiscal stimulus package because the tax rebates started to be sent out only at the end of the month. We are assuming that sales will start to be affected in May. The chain store sales data for May will be closely monitored to get a reading of how much of the stimulus consumers are spending and how fast they are spending it. Our base-case forecast sees real consumption being boosted in both the second and third quarters by the stimulus package, although most of the impact will likely be felt in the third quarter.

While the stimulus will likely support growth in the second and third quarters, it remains an open question as to whether the economy will be able to retain the momentum provided by the fiscal rebates. Our base-case sees economic growth muddling along at a below-trend pace as we end the year and move through the first quarter of 2009 before finally regaining trend speed as credit market strains ease and the housing market finds a bottom.

RBC Financial Group
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The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.