The retail sales report looks better, but it's still not great -- and it's no reason to bet against the wave of retailers telling the market business is bad.
Retail sales nationwide rose 1.3% in April, beating relatively optimistic forecasts, as auto sales recovered from a March dip for companies like General Motors (GM - Get Report) and Ford (F - Get Report) , and gasoline sales rose 2.2% as the price of crude oil rebounded some from its 70% collapse over the last 20 months.
The strength was nearly across the board. Only home improvement retailers like Home Depot (HD - Get Report) and Lowe's (LOW - Get Report) saw a decline, with their sales dipping 1% . Excluding gas and vehicles, sales were up 0.9% for the month.
The news comes after a wave of negative earnings reports and forecasts from retailers like Macy's (M - Get Report) , Nordstrom (JWN - Get Report) and J.C. Penney (JCP - Get Report) . All of them said sales for the quarter ending in April were weak and pointed to potential weakness in profit margins through hte middle of the year. There's not much reason to bet that all these company executives were wrong.
But there's one obvious way to reconcile the numbers. The business is going online.
"That [report] is a strong number," said Regions Financial chief economist Richard Moody. "As to how you reconcile the two, the issue is how, not how much, consumers are spending. Clearly the brick-and-mortar stores are steadily losing share to online sales. Amazon (AMZN - Get Report) is killing it as far as earnings go. Physical stores are still important, but more and more as showrooms as opposed to places where people physically take hold of the goods .... The short version is when people ask me what's wrong with U.S. consumers my answer is always the same -- not much."
There are several ways to think about the decent macro news about the consumer.
First, it's not so good that, by itself, it's going to move the Federal Reserve's rate policy soon. The factors that have had the Fed holding off on rate hikes have more to do with exports and business investment than consumer spending, which rose at a 1.9% annual rate in the first quarter, even as investment declined. Futures markets put the odds of a June rate hike at only 11%.
Second, there is a continuing shift from retail channels to other ways of consumer spending. Yes, online sales are killing it, rising 10.2% over the last year and 2.1% just last month, according to the government. But airlines like United Continental (UAL - Get Report) and Delta Air Lines (DAL - Get Report) and hotel chains like Marriott International (MAR - Get Report) are running at very high rates of utilization. Seats and rooms aren't all full, but they're at cyclical peaks, with good pricing power. And restaurants have been profiting as consumers boost spending more on services than goods.
And third, there's the shift to online. Web shopping is nearly 20 years old now but still going strong.
Amplify Investments CEO Christian Magoon last month launched the still-tiny Amplify Online Retail ETF (IBUY) , which is spread out among more than 40 online retailers.
Magoon's argument is simple, and hard to dispute: the cost disadvantages of store-based retailers aren't going anywhere. Malls are still expensive to run, and low-end wages are likely to rise, especially if the minimum wage goes up, he argues. Stores like Walmart (WMT - Get Report) , Gap (GPS - Get Report) and Target (TGT - Get Report) have already been raising pay. Target is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio.
"Our expectation is that we're going to see more of the same," Magoon said. "There's nothing very exciting about the consumers. And it puts pressure on higher-cost retail stocks.''