(Bloomberg) -- US retail sales increased in April, suggesting consumer spending is holding up in the face of economic headwinds including inflation and high borrowing costs.
The value of retail purchases rose 0.4% after an upwardly revised 0.7% decrease in March, Commerce Department data showed Tuesday. Excluding autos and gasoline, sales increased 0.6%. The figures aren’t adjusted for inflation.
While the overall figure came in below the median estimate in a Bloomberg survey of economists, the gain in sales excluding autos and gasoline topped expectations.
Seven out of 13 retail categories rose last month, including advances at auto dealers, general merchandise outlets and online merchants. The advance in April sales suggests low unemployment and steady wage growth are supporting demand for merchandise.
“The bottom line is that consumers still have the means to spend,” Tim Quinlan and Shannon Seery, economists at Wells Fargo & Co., said in a note. “Whereas in the early days of the pandemic excess savings afforded households the ability to splurge on goods, today a sturdy jobs market and steady real income gains are supporting consumption.”
The S&P 500 opened lower, 10-year Treasury yields rose and the dollar was little changed.
Still, Americans continue to shift more of their discretionary purchases to services and there are some signs consumers are overextending themselves. Sales fell at furniture retailers, sporting goods and other hobby stores, and at appliances and electronics outlets.
Receipts at restaurants and bars — the only service-sector category in the report — climbed 0.6%.
What Bloomberg Economics Says...
“Retail sales saw a modest rebound in April, with spending at restaurants and bars — the main proxy for services in the report — painting a picture of consumers still willing to spend. However, a flat reading for real retail sales tempers the optimism. Overall, the report suggests consumers are becoming more discerning in their spending as the economy slows toward an expected recession later this year.”
— Eliza Winger, economist
For the full note, click here
Recent data show credit-card balances continue to grow and are carrying higher financing rates, indicating further momentum in consumer spending may prove difficult. Federal Reserve policymakers are expected to pause their tightening campaign next month after raising interest rates by 5 percentage points since early 2022 to combat an inflation surge.
If the latest results from Home Depot Inc. are any indication, retailers see some tough sledding ahead. The home-improvement retailer earlier on Tuesday kicked off quarterly earnings season for big-box merchants by cutting its outlook. Comparable sales are now seen falling as much as 5% this year.
Consumer spending accounts for about two-thirds of GDP and more complete inflation-adjusted picture of April outlays including services will surface later this month.
The retail sales report will help shape economists’ estimates for personal spending and gross domestic product in the second quarter. Before the figures, the Atlanta Fed’s GDPNow forecast expected a 1.8% annualized increase in personal consumption and a 2.7% gain in GDP.
So-called control group sales — which are used to calculate GDP and exclude food services, auto dealers, building materials stores and gasoline stations — increased 0.7% in April, the most since the start of the year.
Because the retail sales data aren’t adjusted for changing prices and only include one service-sector category, it can be difficult to draw concrete conclusions about the spending environment.
A separate report Tuesday showed production at US factories rebounded in April, led by the biggest increase in motor vehicle output since late 2021.
Despite an increase in prices at the gas pump on average in April, the value of retail sales at service stations declined for a sixth-straight month.
Data last week showed inflation rising at the slowest pace since 2021. Despite the slowdown, prices are still running about double the Fed’s target rate and weighing on consumers’ purchasing power.
--With assistance from Jordan Yadoo and Olivia Rockeman.
(Adds Bloomberg Economics comment)
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