April's U.S. retail sales report Friday is expected to show a pickup from the recent soft trend, and not necessarily reflect the gloomy comments coming from embattled store operators.
Economists project retail sales rose by 0.8 percent after sliding 0.3 percent in March. Auto sales were strong, but excluding automobiles, forecasts are still for an increase of 0.5 percent, compared to 0.2 percent for March. The producer price index is also expected at 8:30 EDT and is forecast to show a gain of 0.3 percent compared to March's decline of 0.1 percent. Consumer sentiment and business inventories are released at 10 a.m.
The retail earnings train wreck continued after Thursday's closing bell with misses from Nordstrom and Dillard's on both the top and bottom lines. They join a list of retailers, including Macy's, in reporting disappointing earnings and a malaise among shoppers.
Nordstrom shares plunged more than 16 percent in late trading Thursday after its earnings report, and now the focus is on Friday's report from J C Penney. Nordstrom cut its 2016 sales growth outlook by a point to a range of 2.5 to 4.5 percent, and it also warned its same-store sales could contract.
As retailers issued downbeat reports this week, the debate on Wall Street has focused on whether the consumer is getting suddenly weaker or whether there is a more fundamental and structural shift in the sector as shoppers increasingly spend more online. Retail sales are the most important report since last Friday's jobs report.
"I guess the problem is how do you measure all of this stuff. That is the issue and that goes to the larger issue of GDP. How can it be that the jobs picture and the housing picture and the relative steadiness of confidence translate into this soft GDP? That's the question that's been unanswered," said Julian Emanuel, equity and derivative strategist at UBS.
"After today's jobless claims number and Friday's jobs report, the burden of proof is now on the economy to show that it is not softening even more than has been expected."
According to Thursday's report, jobless claims last week rose to 294,000, the highest level in 14 months. Some economists blamed an annual dip that comes each year when New York City schools close for spring break and bus drivers and cafeteria workers file temporary unemployment claims. But the number still appeared alarming after the April jobs report came up 40,000 short of expectations, with just 160,000 nonfarm payrolls last Friday.
Deutsche Bank's chief U.S. economist, Joseph LaVorgna, said he expects just a 0.3 percent gain in retail sales. "I'm looking for a soft-ish report, consistent with some of the industry anecdotes," he said, noting the pace of consumption is very slow even with the decline in energy prices.
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"It's a function of several things — the acknowledgement that the Fed's low rate policy will persist. That has pushed people into saving more. Given the fact that tax receipt growth has fallen off so sharply over the past year, it's possible the jobs creation you've got is good growth but income is soft and that's maybe why consumers aren't spending the energy tax cut," LaVorgna said.
JPMorgan economist Daniel Silver said he expects an above-consensus gain of 1.1 percent for the headline retail sales and 0.4 percent for the control group — sales excluding autos, gasoline and building materials.
"I think that to map the quarterly earnings reports into a monthly retail sales report is pretty hard to do," said Silver. "It's not a good sign but it doesn't change our view on tomorrow's report. We're not seeing any indication that in April there was a big drop-off in spending." He said the disappointing comments from retailers could be from a transition in the industry.
"We've seen in recent years a clear, downward shift in department stores sales and we've seen an upshift in online shopping," Silver said.
"We have a fairly optimistic view of the consumer," said Silver, adding he's not looking for a boom. "But we've got decent gains. For the year overall, we looked for 2.3 percent on real consumption, a little bit down from 2015, as we expect to lose the boost from lower energy prices."
