Sales bummer adds to bleak economic outlook

Santelli Exchange: Weak retail sales
Santelli Exchange: Weak retail sales   

Wall Street experts who blamed the economic slowdown this year on the brutal winter weather are being left out in the cold.

April's retail numbers called into question the broader narrative that the dismal first-quarter numbers were an anomaly that would not be repeated. The Commerce Department on Wednesday reported sales of $436.8 billion, virtually unchanged from March despite expectations that the economy was about to turn the corner and amid estimates that sales would grow at least a meager 0.2 percent.

The result has been a further dimming in hopes for second-quarter growth. The Federal Reserve's Atlanta branch cut its GDPNow forecast for the second quarter to 0.7 percent, far lower than consensus hopes for a 3.3 percent gain. A subsequent report showing a 0.3 percent decline for import prices in April added to low-growth expectations.

"The continuing weakness of retail sales in April brings into question our working assumption that the soft patch through the winter months was largely due to the unseasonably cold temperatures in the Northeast," Paul Ashworth, chief U.S. economist at Capital Economics, said in a note to clients.

Economists have been resting their hopes for a brighter 2015 on a narrative that the 0.2 percent gross domestic product growth in the first quarter—expected to turn negative in upcoming revisions—was brought about by three unusual factors: A surging U.S. dollar, slowness due to a West Coast port strike, and the bitter cold and heavy precipitation during the winter months.

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Conversely, they see consumers helping the economy spring back to life, thanks to the savings that lower gas prices have brought and the highest level of consumer optimism in years.

However, the numbers just aren't bearing out those hopes. Consumers are pocketing their gas savings, which have been fading anyway. Gasoline is up nearly 12 percent over the past month, rising to $2.66 a gallon for unleaded, according to AAA, though the price remains 27 percent below its year-ago level. ( Tweet This )

Department store sales slumped 2.2 percent, furniture stores slipped 0.9 percent, gas stations dropped 0.7 percent, and motor vehicle and parts dealers declined 0.4 percent. Those numbers offset gains at nonstore retailers (0.8 percent), restaurants and bars (0.7 percent), and sporting goods, hobby, book and music stores (0.8 percent).

Andrew Wilkinson, chief market analyst at Interactive Brokers, pointed out that spending increased in seven of the 13 categories the government tracks. He focused particularly on the restaurant trend, asserting that "the labor market recovery is manifesting itself in dining habits, too."

Shoppers at a Target store in Mentor, Ohio.
Daniel Acker | Bloomberg | Getty Images
Shoppers at a Target store in Mentor, Ohio.

Taken together, though, the disappointing numbers marked the fifth consecutive month retail sales failed to meet expectations, the longest streak since at least 2001, according to Bespoke Investment Group.

Excluding gas and auto, sales rose 0.2 percent, which also was below estimates of 0.5 percent.

Read MoreWall St getting bitter dose of economic reality

None of this is going to bode well for growth expectations, nor will it put much pressure on the Fed to hike interest rates, despite last week's drop in the unemployment rate to 5.4 percent. Fed fund futures now are assigning just a 21 percent chance of a rate increase in September, with December now showing a 53 percent probability.

"We can blame weather and the port strikes all we want ... but it's also obvious that saving an extra $50 per month at the gasoline pump hasn't moved the needle for overall sales," Peter Boockvar, chief market analyst at The Lindsey Group, said in a note. "Mediocrity remains my best description of the U.S. economy."