Last week brought a revision to Q1 2024 GDP and April Personal Income & Outlays. Those, along with Placer traffic for May and retailer earnings reports, allow for a preview of the Census Bureau’s May Retail Sales report and an outlook for June and calendar Q2. Net-net, we expect healthy May results and a slightly stronger June, which sets up this summer to be a happy one for most retailers but not all. Yes, discretionary spending on goods is improving; however, for this year’s consumers, last year’s prices aren’t good enough. Consumers want lower prices than last year for their spending and loyalty (see our previous update on Walmart). As we wrote last week on essentials retailers, we got more evidence of the earnings from Dollar Tree and Five Below. Additionally, essentials retailers generally have less-affluent customers as we’ve noted, meaning (1) the high rate of inflation in essentials services (insurance for auto, home, and health) is stealing dollars away from discretionary purchases; and (2) that consumer has left of the excess savings that were there from the pandemic stimulus.
Q1 GDP increased at a more moderate +1.3% quarter-over-quarter rate, which is a good reading in the Fed’s eyes as it shows a slowing, but still growing economy (Q4 was +3.4%). This allows the Fed to lower the temperature on its constrictive monetary policy. The quarter’s growth was produced by personal consumption expenditure (PCE) and housing. On a year-over-year nominal basis, GDP and PCE gained a respective +5.4% and 4.9%, with PCE slower by -70 bps quarter-over-quarter.
April PCE was up +$43B--an annualized seasonally adjusted annual rate (SAAR) figure--which was driven almost entirely by services. The increase was afforded by a +$30B increase in wages & salaries and a modest decline in personal savings. Reflective of the first paragraph, prices for durable goods and food declined month-over-month. (This week, Campbell Soup reduced their sales guidance for the year.) The chart below shows that big ticket is now highly deflationary and that should yield improving volume trends in the months ahead. Yes, the nasties, insurance, and owners' equivalent rent aren’t easing, but they aren’t spiking more, which should allow a mellowing by the end of summer.
Turning to our preview for the Census Bureau’s May retail sales report and outlook for June. The chart below shows the outperforming brand (on a visit per location basis) from each retail category from the second half of April through the end of June. Superstores did better in May, led by Costco. Walmart also accelerated, impressively against a more difficult comparison. (Of note, we have limited the category analysis to the largest brands in the category in aggregate.) Costco, did similarly month-to-month and led the category, others in the category improved for the month. Grocery also slightly picked up, led by Food Lion. Alternative grocers were again led by Aldi (+25%). Sporting Goods & Outdoor had a better month, led by Bass Pro. Off-price had a better month, led by T.J. Maxx and Marshalls. Department stores were mixed with Dillard’s stronger and Kohl’s weaker. Home improvement slowed after a good April, with Menards leading among the larger-format stores and Ace Hardware leading among small-format. To conclude, we expect a modestly better retail sales report for May. Given the economic picture discussed above, we expect June to improve further despite it lapping a more difficult comparison.
