(Bloomberg) — American shoppers' reluctance to open their wallets has economists stumped.
Retail sales barely budged in April, confounding projections for a small increase, figures from the Commerce Department showed Wednesday. That followed a 0.2 percent drop from January through March that marked the first quarterly decline in almost three years.
Even with all the stars aligned, consumers have socked away the extra cash from lower gasoline prices and rising employment instead of spending the windfall. That casts doubts on how soon Federal Reserve policy makers, who need to be convinced growth is gaining momentum after a first-quarter slump, will be able to raise interest rates.
"The economy needs to pick up steam for the Fed to be really satisfied that we're leaving the weakness of the first quarter behind us," said Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut, who projected sales would be unchanged and is the top-ranked forecaster for retail purchases over the past two years, according to data compiled by Bloomberg. "This puts a lot of pressure on the next month's number to be very strong to make up for the weakness in April."
Stocks fluctuated after paring earlier gains amid corporate deals and the weaker-than-forecast retail sales data. The Standard & Poor's 500 Index rose 0.2 percent to 2,103.16 at 1:15 p.m. in New York.
Funds futures
Futures in the Fed's benchmark interest rate imply a 0.32 percent rate at the end of 2015, down from 0.33 percent on Tuesday. Most economists in a Bloomberg survey late last month predicted the central bank will start tightening in September, and the median forecast of Fed officials at the March FOMC meeting projected the rate would end the year in a range between 0.50 percent and 0.75 percent.
"The sluggish spending and economic growth performance will continue to argue for a later start to liftoff, essentially ruling out a mid-year hike," Millan Mulraine, deputy head of U.S. research & strategy at TD Securities USA in New York, wrote in a research note. "And if growth momentum does not rebound more meaningfully in the coming months, even the September meeting might be too soon for the Fed to gain the necessary confidence in the sustainability of the recovery to justify policy tightening."
Fed liftoff
For now, TD Securities continues to project the first increase will occur in September, "but with numbers like these, the odds are falling fast," Mulraine wrote.
The median forecast of 88 economists surveyed by Bloomberg projected April retail sales would rise 0.2 percent. Estimates ranged from a decline of 0.5 percent to an advance of 1 percent.
Revisions to most categories for March were a saving grace for the otherwise disappointing figures for last month. Sales climbed 1.1 percent in March, the biggest gain in a year. It was previously reported as an increase of 0.9 percent.
Seven of 13 major categories showed increases in April, led by restaurants and bars and online merchants, the report showed. A tiny advance among miscellaneous stores tipped the balance in favor of gainers.
The dour tone of the report was reinforced by declines among discretionary items such as automobiles, furniture and electronics. Receipts at electronics stores have declined for seven consecutive months, taking them to the lowest level since January 2014.
Weakness broad-based
