Retail sales rise 0.9% in April as consumers show resilience
WASHINGTON (AP) — U.S. retail sales rose 0.9% in April, a solid increase that underscores Americans’ ability to continue to increase spending even as inflation persists at a high of almost 40 years.
The increase was led by higher sales of cars, electronics and at restaurants, the Commerce Department said Tuesday.
Even taking into account inflation, which was 0.3% on a monthly basis in April, sales increased. Gas prices fell slightly last month, limiting inflation, after rising in March following Russia’s invasion of Ukraine.
Consumers are providing essential support to the economy even after a year of skyrocketing prices for gas, food, rent and other necessities. The economy contracted in the first three months of the year, but consumer and business spending still grew at a healthy pace.
“Never bet against the American consumer has always been a good adage,” said Paul Ashworth, chief US economist at Capital Economics, a consulting firm, in a note to clients. “Despite soaring prices weighing on their purchasing power, the American consumer now seems to be single-handedly keeping the global economy afloat.”
Tuesday’s report also showed March sales were revised higher, with a gain of 1.4% from 0.7%. As a result, spending even increased that month after adjusting for inflation, which jumped to 1.2% as gasoline prices rose. The revision suggests the economy has likely shrunk less than the 1.4% contraction reported last month.
Consumer strength makes a recession much less likely, at least anytime soon, Ashworth said. But it also keeps pressure on the Federal Reserve to tighten borrowing costs to cool the economy.
Strong hiring, rapid wage increases and a healthy level of savings — on average — have supported consumers’ financial health, despite consumer prices surging 8.3% in April from a year ago. a year. The increase was just below a four-decade high reached in March.
Still, economists are watching closely to see if consumer spending can continue to outpace inflation. A slowdown in spending would slow economic growth. While this could lower inflation, it would also threaten to push the economy into recession.
Inflation continues to disrupt the business of many retailers, even as sales increase. On Tuesday, Walmart reported an unexpected drop in first-quarter profits even as sales increased. Company executives said rising fuel, food and labor costs had pushed up its expenses.
And for low-income Americans, inflation is taking its toll and forcing many people to adjust their spending habits. Walmart executives told analysts on a conference call on Tuesday that some customers were switching to cheaper store brands from national brands, particularly in lunch meats, as they juggled higher costs.
More customers are buying half-gallon jugs of milk, instead of full gallons, company executives said. Milk prices have jumped 15% in the past year, according to government data.
Elsewhere, Home Depot reported higher sales in the first quarter and raised its profit forecast for this year. Yet much of this increase simply reflects inflation – customer transactions fell 3.9%.
Home Depot sales surged during the pandemic as more people, locked at home, took on home improvement projects, so some pullback was expected as pandemic restrictions ease.
Yet the government report’s robust sales figures are also impressive as retail sales cover only about a third of consumer spending, with the rest going to services such as travel, haircuts and grooming. health. Airlines and hotels are also seeing strong sales as more people travel after postponing trips for two years.
Retail sales figures suggest some supply chain issues may be easing. Sales at car dealerships rose 2.2%, electronics stores 1% and furniture stores 0.7%.
Purchases at online retailers jumped 2.1% and they climbed 2% at restaurants and bars.
Continued strength in consumer demand, fueled by a robust labor market, is a key reason the Federal Reserve has accelerated its efforts to tighten credit and cool the economy. By doing so, Fed Chairman Jerome Powell hopes to lower inflation without causing a recession.
The Fed raised the benchmark short-term interest rate it controls by half a point at a policy meeting earlier this month, double its usual increase. Powell also signaled that the Fed will likely undertake the fastest pace of interest rate hikes in 33 years to get inflation under control.
Several factors allow consumers to continue spending even as prices skyrocket. Wages and salaries rose rapidly as companies, struggling to fill a record number of vacancies, were forced to offer more generous wages.
Average hourly earnings, excluding executives, rose 6.4% in April from a year earlier, one of the fastest annual increases in four decades. Although this rate is lower than the rate of inflation, in some industries the inflation-adjusted wages of workers are increasing.
In April, hourly wages for workers in restaurants, bars, hotels and entertainment industries – excluding executives – jumped 11% from a year earlier. This is above the inflation rate of 8.3% that month.
Strong hiring also boosts spending simply by increasing the number of people earning paychecks. Employers created 2 million jobs this year as the unemployment rate fell to 3.6%, nearly a half-century low.
And overall, consumers have more cash. Last year’s stimulus checks bloated the bank accounts of many Americans, including low-income Americans. People also spent less in 2021 on travel, entertainment and dining out. As a result, economists calculate that US consumers have about $2 trillion more in savings than they otherwise would have based on pre-pandemic trends.
AP Business Writer Anne D’Innocenzio contributed to this report from New York.