Bounce in U.S. economic activity in Q2 looks to be modest

U.S. retail sales were flat (+0.0% M/M) in April, below the +0.2% M/M gain expected by the market. March's figure was upwardly-revised from 0.9% to 1.1%.

This was not the rebound in spending that was anticipated. The revisions to March suggest mild upside to first quarter real GDP growth, but not enough to push growth back into positive territory.  The economy is still likely to register a contraction when the second estimate rolls in.

For the second  quarter, the positive revisions to March suggest a better handoff for spending. However, the poor showing in core sales suggests only very soft upward momentum. At this point, the anticipated bounce in economic activity in the second quarter looks to be particularly modest, likely short of 2.0% and well shy of initial expectations for 3.0% growth.

"Another poor showing in spending is not what the Fed wants to see right now for it to have the conviction to hike midyear. While we continue to anticipate a first rate hike in September, this requires an upturn in high frequency data and the window is narrowing." says TD Economics