BofAML’s Michelle Meyer is “puzzled” at why the U.S. consumer is not the spendaholic her textbooks said they should be by now…

A setback after the bounce in March

Based on BAC (BAC) internal data, which tracks spending on credit and debit cards, consumer spending slowed in April. Retail sales ex-autos declined 0.1% mom seasonally adjusted after climbing 0.8% in March. It is prudent to smooth through the last three months, which reveals an average monthly gain of 0.3%. 

Given the great deal of noise in the data, it is helpful to examine spending trends by sector.

Department store sales were the weakest, maintaining the post-recession trend of contraction. The housing-related sectors were also sluggish, with a decline in spending on home improvements and home goods. There seemed to be a weaker trend to the former, but the drop in home goods looked like a reversal from recent strength. On the other end, there was a notable gain in spending at electronic stores, which we think may have partly owed to the launch of the Apple iWatch. As we show in Chart 2, prior releases of Apple (AAPL) products caused notable spikes in spending, which the seasonal adjustment process did not capture.

The gain this time was modest relative to previous iPad and iPhone releases. This is likely because much of the sales were on pre-order, which means that actual sales will happen with a lag.

We are left puzzled by the weak April consumer spending data – we expected the consumer to be a tailwind for growth in this year, offsetting the drag from weaker investment and manufacturing. Even accounting for the softer jobs data in the past two months, the labor market added an average of 255,000 jobs a month over the past six months. Consumers have benefited from lower gasoline prices and confidence has picked up.

If consumer spending does not accelerate, we will have to question our forecast for GDP growth to accelerate back above 3.0% in the second half of the year.