Retail sales in the U.S. rose sharply in April as consumers bought more vehicles amid improved supply and increased restaurant costs, which gave a powerful boost to the economy in the early second quarter.
The wide growth in retail sales, reported by the Department of Commerce on Tuesday, indicates that demand remains headwind from high inflation, deteriorating consumer sentiment and rising interest rates.
This calmed the fear of an imminent recession. The main strength of the economy was highlighted by other data showing that production in factories accelerated in April.
Wage growth caused by the struggle for scarce workers and the massive savings accumulated during the Covid-19 pandemic are backing up spending. Consumers are also increasingly using credit cards. But strength in spending means the Federal Reserve will need to stick to its plan to cool demand.
“Strong retail sales should limit concerns about the risk of declining growth and keep Fed officials firmly focused on raising interest rates to fight inflation,” said Matthew Masicot, an economist at Citigroup in New York. “At some point, rising prices are stifling consumer demand and slowing inflation, but so far a strong departure from rising nominal incomes and affordable consumer credit is boosting demand.”
Retail sales rose 0.9% last month. Data for March were revised above to show sales growth of 1.4% instead of 0.5% as previously reported. The growth of retail trade in April, which reflects both high demand and rising prices, met the expectations of economists. Sales increased by 8.2% over the same period last year.
Retail trade consists mainly of goods and not adjusted for inflation, which seems to have peaked. Consumer price inflation in April rose by 8.3% over the same period last year.
Retail sales growth was driven by car dealership revenue, which jumped 2.2% after falling 1.6% in March. This offset the decline in sales at gas stations by 2.7%. Pump prices retreated from record highs in April. However, since Tuesday, they rose to an average high of $ 4,523 per gallon, according to AAA.
Excluding gasoline, retail trade grew by 1.3%. Revenues in bars and restaurants, the only category of services in the retail sales report, grew by 2.0%. Sales in clothing stores increased by 0.8% as many workers return to offices. Online store sales grew 2.1%.
There were also strong sales growth in retail chains of electronics and home appliances, as well as in furniture stores. But sales in stores of building materials, garden tools and equipment fell by 0.1%. Sales in sporting goods, hobbies, musical instruments and bookstores fell 0.5%.
Shares on Wall Street traded higher. Dollar fell to a basket of currencies. The profitability of the American Treasury has risen.
With a record 11.5 million vacancies at the end of March, wages are rising and allowing consumers in demand to get a second job or arrange additional changes while providing some anti-inflation cushion. Households have excess savings of at least $ 2 trillion, some of which is spent on maintenance. Compensation to American workers in the first quarter received the largest increase in more than three decades.
But if the Fed pursues an aggressive monetary policy, retail sales are expected to slow later this year.
The US Federal Reserve has raised its political interest rate by 75 basis points since March. The Fed is expected to raise that rate by half a percentage point at each of the next policy meetings in June and July.
The National Retail Federation welcomed sales growth as a demonstration of consumer resilience, but called on the White House and the US Congress to repeal tariffs on Chinese goods, pass legislation to fix the supply chain and address immigration reform to ease the tough labor market.
Home Depot Inc boosted annual earnings and sales forecasts on Tuesday, announcing an increase in comparable sales in the first quarter, while Walmart reported a sharp drop in quarterly earnings and cut its full-year earnings forecast.
Excluding cars, petrol, building materials and foodstuffs, retail trade turnover increased by 1.0% in April. Data for March were also revised above to show that these so-called major retail sales rose 1.1% instead of falling 0.1% as previously reported.
The main retail sales volume is most consistent with the component of consumer spending gross domestic product. The solid growth in major retail sales last month suggests that consumer spending started strongly in the second quarter.
Strong consumer spending and robust business investment in equipment helped support domestic demand in the first quarter, even as GDP declined 1.4% year on year due to a record trade deficit and a slight slowdown in stockpiling compared to the October-December period.
The Atlanta Fed raised its forecast for GDP growth in the second quarter to 2.5% from a rate of 1.8%.
A separate Fed report on Tuesday showed that production rose 0.8% last month, in line with growth in March and exceeding economists ’expectations of 0.4% growth. Production at car plants rose 3.9% last month after accelerating 8.3% in March.
As a result, Capacity utilization for the manufacturing sector, an indicator of how fully firms are using their resources, rose 0.6 percentage points to 79.2% in April. This was the highest level since April 2007 and increased capacity utilization by 1.1 percentage points above the medium term.
“Increasing capacity utilization provides further evidence that supply chain problems are being reduced, and more production will help slow inflation,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh.