This morning we learned that US consumer spending was flat in April and did not increase as the consensus had forecast. There was a modest revision that bumped March retail sales up 1.1% (had been reported at .9%)–which made March the only spending increase in the past 5 months. Year over year since April 2014, overall sales were up just 0.9%–the lowest level since October 2009. See: US consumers stick to cautious track, clouding outlook on broader economy.
According to A. Gary Shilling (see: US consumers save, don’t spend), since the government began collecting retail sales data in 1967, three months of waning sales (never mind 5) has only happened twice outside the context of US recession.
Instead of spending that windfall from lower fuel costs (as stock bulls had expected), households have been paying down debt and building up savings. At 5.3% in March, the personal saving rate in the first quarter of 2015 moved up from 4.4% in November–trends in the right direction at long last; for strengthening consumer balance sheets that is.
Not for sales and US GDP (70% of which is dependent on consumer spending). See: GDPNow Federal Reserve of Atlanta’s latest forecast for Q2 GDP now at .7% (seasonally adjusted annualized rate) and -1% for Q1 vs. the always optimistic sell-side consensus range of 2.6 to 4.25% (annualized forecast) for Q2 (marked by blue band at top of chart).
It’s also not supportive of the rally in oil prices and bond yields (expecting higher growth and rising rates) over the past 2 months. See Oil’s not coming back, here’s why:
Oil bulls who’ve cheered a rebound of 40 percent from a six-year low should take heed: Unless demand accelerates, the rally is in danger.
The omens aren’t good. The U.S. government expects global consumption to grow next year at less than half the rate of 2010, when the world was emerging from a previous recession. The growth is insufficient to close the gap with rising supply, according to Royal Dutch Shell Plc, Europe’s biggest energy producer.
The last time oil crashed, during the 2008 financial crisis, China’s appetite for commodities seemed insatiable, and powered prices higher. This time, Chinese fuel use is growing at half the rate of the past decade, and sliding U.S. shale output could reverse as prices rise, smothering the gains.
“The recent rally appears driven by investors looking at catching the bottom of the market and the expectation that U.S. oil production has reached a turning point,” said Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy. “But fundamentals, notably in the U.S., have not changed much.”