Retail and consumers — What you need to know in markets on Friday

Myles Udland
Markets Reporter

The week will end with another big day for retail.

On Friday, the monthly reports on retail sales and consumer prices will both cross the tape at 8:30 a.m. ET.

Economists expect retail sales rose 0.6% over the prior month in April after a 0.2% decline was seen in March. Consumer prices should rise 0.2% after falling 0.3% in March. “Core” consumer prices, which exclude the more volatile costs of food and energy, should be use 2.3% over last year in April.

Also in economic data we’ll get the first look at consumer sentiment in May from the University of Michigan. This report will cross at 10:00 a.m. ET.

This data will come after a Thursday that saw a number of headline retail names take it on the chin after earnings disappointed across the board.

Shares of Macy’s (M) were the biggest loser in the S&P 500, falling 17% after sales dropped more than expected, while Kohl’s (KSS) shares fell almost 8% after earnings, and Nordstrom (JWN) lost 7.6% before the company’s earnings report.

After the market close, Nordstrom then added to its pain, falling 5% after hours as its earnings missed expectations. In its release, Nordstrom said its sales decrease, “was consistent with trends experienced over the past year.”

But surely 2017 is not the first time that retailers or investors noticed that certain big secular trends are working against the space. Namely, the rise of online shopping. This chart, for instance, seems obvious enough.

Online sales as a percent of total retail sales in the US. Up and to the right. (Source: FRED)

What the rise of online sales masks, however, is that investors and markets no longer view poor sales in traditional department stores as a sign of soft consumer spending. Accounting for about 70% of economic growth, consumer spending is one of the easiest and broadest ways to measure the health of the U.S. economy.

Using personal consumption expenditures from the quarterly GDP report, we see that consumption has risen more than the overall growth for two decades, meaning that any slide in overall spending will take the economy with it.

Source: FRED

And while investors were certainly marveling over the decline in specific retail names on Thursday, there was no talk of a soft consumer, or the potential for the economy to hit a pothole or a soft patch. In other words, there was no extrapolation from the plight of certain retail chains into a sign that consumers, on the whole, are having a tough go of it.

Markets, then, are telling the sector two things. One, we don’t view department store sales as a good sign of consumer spending. And two, that consumer spending isn’t really zero-sum — it’s just that fewer people want to spend their money with you.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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