US retail sales increase moderately; core sales strong
US retail sales increased less than expected in April, but the underlying trend was solid, suggesting that consumer spending got off to a strong start in the second quarter, defying expectations of a recession this year.
The smaller-than-expected rebound in retail sales last month reported by the Commerce Department on Tuesday (May 16) likely reflected a moderate rise in receipts at auto dealerships, which some economists said was because of lower prices. Automobile manufacturers reported a surge in unit sales in April.
“Outright declines in spending will be needed in the remaining two months of the second quarter to spur a contraction in real personal consumption,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “This risks another delay in the long-awaited recession, likely due to ongoing revenge spending, excess savings, and sturdy income growth.”
Retail sales rose 0.4 per cent last month. Data for March was revised slightly lower to show sales dropping 0.7 per cent instead of 0.6 per cent as previously reported. Economists polled by Reuters had forecast sales rebounding 0.8 per cent.
Retail sales are mostly goods, which are typically bought on credit, and are not adjusted for inflation. Receipts at auto dealers rose 0.4 per cent after back-to-back decreases.
“That adds to the signs that vehicle prices are now falling, weighing on the nominal value of sales,” said Andrew Hunter, deputy chief economist at Capital Economics.
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Nevertheless, higher borrowing costs and prices are taking a toll on consumers. Sales at building material and garden equipment supplies dealers increased 0.5 per cent. Online retail sales surged 1.2 per cent, likely as price-conscious consumers continue to seek discounts and deals. Furniture store sales fell 0.7 per cent, while receipts at electronics and appliance stores dropped 0.5 per cent.
Spending on hobbies decreased 3.3 per cent, but consumers stepped up purchases at health and personal care stores. Sales at food services and drinking places, the only services category in the retail sales report, rose 0.6 per cent. Economists view dining out as a key indicator of household finances.
The rise in retail sales added to strong job growth in April in suggesting that the economy was experiencing a spring revival after activity slowed in February and March. Spending is being underpinned by strong wage gains thanks to a tight labour market.
Some households still have savings accumulated during the Covid-19 pandemic. Economists are forecasting a recession as the cumulative and delayed effects of the Federal Reserve’s fastest interest rate hiking campaign since the 1980s to tame inflation start to have a broader impact on the economy.
Banks are also tightening lending standards, which could make credit inaccessible to some consumers.
Excluding automobiles, petrol, building materials and food services, retail sales rebounded 0.7 per cent last month. Data for March was revised slightly down to show these so-called core retail sales slipping 0.4 per cent instead of 0.3 per cent as previously reported.
Core retail sales correspond most closely with the consumer spending component of gross domestic product (GDP). Consumer spending, which accounts for more than two-thirds of US economic activity, accelerated in the first quarter, offsetting the drag on GDP growth from an inventory liquidation.
The economy grew at a 1.1 per cent annualised rate last quarter. The Atlanta Fed is currently estimating GDP rising at a 2.7 per cent pace in the second quarter. REUTERS
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