WASHINGTON (Reuters) – U.S. retail sales increased less-than-expected in April, but the underlying trend was solid, suggesting consumer spending got off to a strong start in the second quarter, defying expectations of a recession this year.
A smaller-than-expected rebound in retail sales last month that the Commerce Department reported on Tuesday likely reflected a moderate rise in auto dealership receipts, which some economists said was due to lower prices. Automakers reported an increase 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 Guattieri, chief economist at BMO Capital Markets in Toronto. “This risks another delay in a long overdue recession, likely due to continued retaliatory spending, excess savings, and strong income growth.”
Retail sales rose 0.4% last month. Data for March was revised downward slightly to show sales falling by 0.7% instead of the 0.6% previously reported. Economists polled by Reuters had expected sales to rebound by 0.8%.
Retail sales are mostly commodities, usually purchased on credit, that are not adjusted for inflation. Receipts at auto dealers rose 0.4% after consecutive declines.
“This adds to the signs that auto prices are now falling, which is affecting the nominal value of sales,” said Andrew Hunter, deputy chief economist at Capital Economics.
However, higher borrowing costs and rates negatively affect consumers. Sales at building materials and garden equipment retailers rose 0.5%. Online retail sales rose 1.2%, likely as price-conscious consumers continued to seek discounts and deals. Furniture store sales fell 0.7%, while receipts at electronics and hardware stores fell 0.5%.
Spending on hobbies fell 3.3%, but consumers stepped up their purchases at health and personal care stores. Sales in food and beverage services, the only service category in the retail sales report, increased 0.6%. Economists see eating out as a leading indicator of home finances.
The rise in retail sales added to strong job growth in April suggesting that the economy was picking up in the spring after activity slowed in February and March. Spending is being supported by strong wage gains thanks to a tight labor market.
Some families still have savings built up during the COVID-19 pandemic. Economists expect a recession as the cumulative and delayed effects of the Fed’s fastest rate hike campaign since the 1980s to tame inflation begin to have a broader impact on the economy.
Banks are also tightening lending standards, which could make credit unavailable to some consumers.
Excluding autos, gasoline, building materials and food services, retail sales rebounded 0.7% last month. March data was revised slightly to show alleged core retail sales falling by 0.4% instead of the 0.3% previously reported.
Core retail sales correspond closely to the consumer spending component of GDP. Consumer spending, which accounts for more than two-thirds of US economic activity, accelerated in the first quarter, offsetting the burden on GDP growth from inventory drawdowns.
The economy grew at a rate of 1.1% annually in the most recent quarter. The Atlanta Federal Reserve estimates that GDP rose at a 2.7% pace in the second quarter.
(Reporting by Lucia Mutikani) Editing by Chizu Nomiyama
Our Standards: The Thomson Reuters Trust Principles.
#retail #sales #rose #moderately #Core #sales #strong