Orlando's Outlook: Strong 'Mapril' retail sales rebound


Bottom line Despite four nor’easters in March, the coldest and snowiest April in two decades and a 15% increase in gasoline prices over the past three months, retail sales rebounded with a vengeance this spring, posting the best “Mapril” results in six years. So for now at least, last December’s tax cut and this year’s late income-tax refunds have offset the sharp increase in gas prices.

We enjoyed the best Christmas retail sales season in five years in 2017, but that was exclusively because of November’s powerful 5.9% year-over-year (y/y) surge. When consumers saw their personal savings rate fall to a cycle low of 2.4% in December, they shut their purse. Nominal retail sales fell 0.1% in December and 0.2% in January 2018, followed by a breakeven February. They then leapt 0.8% in March and 0.3% in April, putting economic growth back on a positive trajectory. Importantly, “control” results rose 0.4% month-to-month (m/m) in April and 0.5% in March, compared with declines of 0.3% in December and 0.1% in January, and a tepid 0.1% gain in February. This later measure strips out autos, gas, building materials and food service and feeds directly into the quarterly GDP calculation, in which the consumer accounts for about 70% of the total.

The volatile monthly trade deficit enjoyed a sharp 15% improvement recently, from $57.7 billion in February to $49 billion in March. In conjunction with the stronger retail sales picture this spring, this supports our forecast for a positive revision to first-quarter GDP to perhaps 2.5% and for a robust second-quarter bounce to an above-consensus estimate of 3.4%. Moreover, while consensus thinks the Federal Reserve (Fed) will use this recent rebound in retail sales to hike interest rates at least three more times this year, we’re still expecting just two more (in June and December), as we believe a cautious Fed wants to patiently study the potential longer-term impact of higher energy prices on consumer spending and economic growth.

Why is ‘Mapril’ a two-month retail sales season? Due to the lunar and religious calendars, Passover and Easter change from year to year. This year, Easter Sunday fell on April 1 compared with April 16 last year, while the first night of Passover was Friday, March 30, versus Monday, April 10 in 2017. Because spring break, school holidays and family vacations typically revolve around the changing calendar during March and April, we analyze the combined retail-sales results of both months to get a more accurate reading on how strong or weak the spring Easter/Passover shopping season was as a whole.

Stronger ‘Mapril’ in 2018 The Department of Commerce reported yesterday that average total retail and food-service sales of $496.8 billion for the 2-month holiday period of March and April 2018 rose a healthy 4.8% y/y, marking the best “Mapril” in six years (since a robust 5.6% gain in 2012). To be sure, 2018 was only marginally better than 2017, when “Mapril” gained 4.7%, but it is double the 2.4% gains in both 2016 and 2015. The consumer has been much stronger over the past two years than in the previous two years, perhaps due to the lower tax rates, tighter labor market and healthy economic and corporate profit growth.

Confidence remains solid As a result, business and consumer confidence remain elevated.

  • The Conference Board's Index of Leading Economic Indicators (LEI) rose 0.4% in April on a m/m basis to 109.4, extending its all-time 58-year cycle high.
  • The National Federation of Independent Business (NFIB) small-business optimism index rose to a 34-year high of 107.6 in February 2018, up sharply from a cycle trough of 94.1 in September 2016. It has since declined to 104.8 in April 2018.
  • The Conference Board’s Consumer Confidence Index soared to an 18-year high of 130 in February 2018, up from 100.8 in October 2016, though it has since slipped to 128.7 in April 2018.
  • Michigan Consumer Sentiment Index rose to a 13-year high of 101.4 in March 2018, up from a 2-year low of 87.2 in October 2016. It has since eased to 98.8 in April 2018.

Refilling the coffers In conjunction with this surge in confidence, the personal savings rate fell from 4.1% in February 2017 to its recent 13-year low at 2.4% in December 2017. However, lackluster consumer spending over the ensuing three months boosted the personal savings rate back up to 3.3% in February, with that new-found dry powder fueling stronger consumer spending trends during “Mapril.” The personal savings rate sits at 3.1% as of March 2018.

Keep a close eye on energy Crude oil (WTI) prices surged 70% over the past year, from $42 per barrel in June 2017 to a 3-year high of $72 this week. This increase is due to a tighter global supply/demand balance and the reimposition of trade sanctions on Iran. More recently, crude has jumped nearly 25% over the past three months, from a base of $58 in February.

Retail gas prices at the pump tend to lag, and the national average price of a gallon of unleaded regular gasoline rose 30% over the past year, from $2.23 per gallon last July to a 3-year high of $2.89 this week. More recently, gas prices have risen about 15% over the past three months, from a base of about $2.51 per gallon last February. With the summer driving season about to begin, we’ll be watching closely to see if there is any noticeable decline in overall consumer spending or if consumers intentionally will orchestrate a mix shift in their spending behavior to accommodate higher energy prices.

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