This morning’s report from the Commerce Department on retail sales in April was strong enough that we expected it to underpin a stronger climate for gross domestic product in the second quarter. It turns out that we were not alone. The research team at J.P. Morgan Chase & Co. (NYSE: JPM) is upgrading its second-quarter GDP target on the heels of the report.
We saw that the firm’s new target is 2.0% for second-quarter GDP. The prior target was 1.5%, although the firm did caution that it is still very early in the quarter to be ratcheting the expectations higher. Today’s seasonally adjusted retail sales figure was $419.03 billion, and that was actually up 3.7% in raw dollars from a year ago in retail and food services.
The report said:
The strength in the April figure was fairly broad-based, with particularly good gains reported for retailers of building materials, clothing, general merchandise, and non-store retailers (primarily internet). Even motor vehicle and parts dealers saw a 1.0% increase, in spite of an already-reported decline in automaker unit sales. The picture on the consumers’ response to the beginning of the year tax increases has now done a complete round-trip. At first, initial January and February data indicated a surprising degree of resilience; March data and downward revisions then appeared to reveal a significant weakening in consumer spending. Now, with the latest data, consumers’ once again appear unfazed by the fiscal restraint that took place earlier in the year.
As a reminder, consumer spending accounts for what is generally accepted as 70% of GDP throughout the year. If retail sales are coming in much stronger than expected, then it becomes close to certain that GDP will be better than expected as well.
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