After dropping more than anticipated in March, retail sales increased 0.1% in April, pushing year-over-year growth up to 3.7%. Excluding automobiles, retail sales fell 0.1% during the month, posting a 2.8% gain since April 2012.
If there is good news to be had in today’s report, it’s that the modest deterioration in sales that occurred in March was halted in April, boosted by better auto sales. Excluding auto sales, the story was more troubling though, as sales declined for the second consecutive month after peaking in February.
The strength and resilience of consumers was a broadly positive story driving first quarter growth. That spending advance was funded by a continued decline in the household savings rate. Current household debt levels and terms would suggest a further reduction in savings may be possible. With interest rates so low and debt levels having fallen in recent years, household budgets are less strained and debt service requirements are more manageable.
With labor market conditions slowly healing and income growth still restrained, consumers may have to continue to save less and borrow more at the margins to sustain spending growth. The key may be whether they can do so long enough to successfully bridge the gap until stronger income growth becomes reality.
That will require consumers to remain confident in their personal financial circumstances and maintain a view that the economy will continue to improve in the quarters ahead. Whether or not consumers will be able to do so may be the key to determining the trajectory of the economy for the duration of 2013.
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