American consumers kept spending in April despite rising prices and growing uncertainty, suggesting that the economy can absorb the current inflation shock—at least for now.
Retail sales slowed sharply to a 0.5% increase from March’s 1.6% surge, but the underlying details were better than expected.
The control group and sales excluding autos and gasoline both came in above forecasts, and unlike March, the gains appear to reflect genuine increases in spending volume rather than just higher prices.
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Most goods prices outside of food, gasoline and used cars were essentially flat in April, with durable goods prices actually falling. That means consumers were buying more, not just paying more.
There are a couple of reasons the consumer held up better than the headline suggests. Larger tax refunds from the new tax bill continue to work their way through household budgets, particularly for lower- and middle-income earners who spend refunds quickly.
It is also possible that consumers, facing rising inflation expectations from the war in Iran, are pulling forward purchases before prices climb further. We saw exactly this behavior during the tariff saga, and we should not ignore it now.
But the deceleration from March is real, and it reflects the ongoing drag from elevated energy costs. Gasoline prices remain well above pre-war levels, and that is eating into household budgets month after month.
The demand destruction story is not over—it is unfolding unevenly. Big-ticket categories like automobiles remain under pressure from higher fuel costs, tighter financing and weakening sentiment.
The forward picture is where it gets more difficult. Our forecast calls for the consumer price index to push above 4% in the May reading.
Real wage growth has already turned negative at minus-0.3%, and if nominal wages hold near 3.5% while inflation approaches 4.5%, that is a full percentage point of purchasing power lost.
Any boost from tax refunds will fade, and the pull-forward effect eventually reverses—you cannot borrow from future demand forever.
For now, the American consumer is proving more durable than the sentiment surveys would suggest. But the margin for error is thin, and it is getting thinner.
Inside the data
Overall retail sales rose by 0.5% in April, in line with the consensus estimate. March’s reading was revised down to a 1.6% increase from 1.7%.
The control group rose by 0.5%, above the 0.4% forecast. March was revised up to a gain of 0.8% from 0.7%.
Sales excluding autos rose by 0.7%, matching expectations. Sales excluding autos and gasoline rose by 0.5%, above the 0.3% forecast.
