What happened: American consumers continued spending at a spectacular rate last month, with the overall value of retail purchases essentially unchanged after a historic surge in March. Retail sales – receipts recorded at stores, restaurants and online – flatlined at 0.0% on a month-over-month basis in April, slowing from the blistering 10.7% pace set in March. Economists surveyed by Bloomberg had forecast a 1% gain.
Auto purchases – which generally make up more than a fifth of total retail sales – rose 2.9% following an upwardly-revised 17.1% jump in March. Consumer preferences have shifted, with ongoing nervousness about public transportation driving many commuters to seek out used vehicles.
Re-openings boosted spending at restaurants and bars by 3%, while general merchandise and clothing stores suffered -4.9% and -5.1% declines, respectively. Sporting and hobby stores experienced a surprising -3.6% drop, while non-store retailers (mostly online) saw a smaller -0.6% drop after a 4.7% advance in March. Most American households received their stimulus checks in March, but some were not mailed until April, and many were parked in savings accounts.
Excluding cars, gas, food, and building materials, so-called “control group” receipts were down -1.5% last month.
The macroeconomic outlook remains unchanged: Overall consumption levels appear to be plateauing at extraordinarily high levels, and spending is beginning to shift from tangible goods toward services that dominated prior to the pandemic. Data releases in coming months will be noisy, but rising vaccination rates and slowing stimulus efforts should result in declining month-over-month growth rates – and a steady normalization in spending categories.
Markets agree: After a kneejerk selloff on the release, the trade-weighted dollar has recovered most of its losses – and remains on course to end the week on a slightly stronger note.
Return of the Mack: In contrast, the loonie remains sharply weaker after yesterday’s commodity plunge was followed by some subtle currency jawboning from Bank of Canada Governor Tiff Macklem. In comments after a virtual speech, Mr. Macklem said, “If it moves a lot further that could have a material impact on our outlook and it’s something we’d have to take into account in our setting of monetary policy. If the dollar were to continue to move – particularly if it’s not reflecting good developments for Canada, that could become more of a headwind on our export projection”.
Overnight index swaps still indicate that traders expect the Bank of Canada to hike at least three times in the next two years, but positioning in the currency options market is showing signs of overstretch – suggesting that the exchange rate could enter a period of consolidation around these levels.
Chief Market Strategist
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