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Friday's retail sales could show whether the economy is bouncing back

  • Retail sales are expected to rise 0.6 percent in April, after a decline in March.
  • A bounce back in sales could parallel a bounce back in the economy after a weak first quarter.
  • Economists could adjust second-quarter GDP forecasts after the retail sales report.
The silhouette of a customer is seen pushing a cart at a Costco Wholesale store in Naperville, Illinois.
Daniel Acker | Bloomberg | Getty Images
The silhouette of a customer is seen pushing a cart at a Costco Wholesale store in Naperville, Illinois.

April retail sales could see a solid gain after a weak March, signaling a stronger start to the second quarter after a temporary first-quarter soft patch.

Economists expect to see an increase in headline sales of 0.6 percent, after a decline of 0.2 percent last month, according to Thomson Reuters. For retail sales, ex autos, they expect a half percent gain from a flat reading in March.

"My sense is the late Easter really wreaked havoc," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. Easter came late in April this year, and spending that normally occurs in March may have shown up in April. "I think we're going to see some decent number, and I expect we'll see some revisions," he said.

Retail sales are a measure of consumer spending and would not necessarily reflect the weakness that plagued department store chains when they released earnings Thursday, dragging down the consumer discretionary sector.

Macy's was one of the retailers reporting earnings Thursday. Its stock was crushed, losing 17 percent after an earnings and sales miss. Analysts say traditional chain stores are losing to off-price retailers and online shopping. JC Penney reports Friday.

Analysts say consumers may be going to department stores less but they are spending on "experiences," such as vacations and dining out, and buying less apparel.

That should help boost growth above the first quarter's paltry 0.7 percent. Expectations for the second quarter are much stronger. Economists see second-quarter growth tracking at an average 3.4 percent, according to the CNBC/Moody's Analytics Rapid Update.

The 8:30 a.m. ET reports of both retail sales and April's consumer price index should show signs of a turnaround, after March inflation fell. Core CPI is expected to rise 0.2 percent, after a 0.1 percent decline in March. There is also consumer sentiment and business inventories at 10 a.m. ET.

Kevin Cummins, senior economist at NatWest Markets, said he expects a half percent gain in headline retail sales. "I think the main takeaway is you get a nice start to the quarter after the weakness we saw in the first quarter," said Cummins.

The first quarter has a history of weakness, going back two decades. April's strong jobs report, last Friday, was the first big positive that the economy may be making a comeback this quarter. Retail sales is expected to show the same thing.

Besides JC Penney, ArcelorMittal, Allianz, and Acushnet report earnings Thursday.

There are two Fed speakers Friday — Chicago Fed President Charles Evans at 9 a.m. ET and Philadelphia Fed President Patrick Harker at 12:30 p.m.