Retail sales rose by 0.4% in April following two consecutive months of declines, the Commerce Department reported on Tuesday.
While the top-line number came out lower than expected, spending on retail goods continued to show an underlying strength in April.
The data should support the hawks on monetary policy and send a message to the markets that rate cuts are not imminent.
The control group—which strips away volatile categories like automobiles, gasoline, building materials and food services—rose by only 0.7% on the month, higher than market forecast at 0.4%
Considering the April consumer price index report, which revealed price hikes in most components of the control group, it is likely that the sales volume was weaker than what the headline dollar figures suggest.
Still, the control group—which feeds into the gross domestic product estimation—suggested a strong second quarter for underlying spending even after adjusting for inflation.
The ongoing shift from spending on goods to services took a break in April after two months. It’s important to note that the retail sales data primarily covers goods, with the exception of food services.
American consumers have demonstrated remarkable resilience in the face of persistent inflation and significant interest rate hikes. Both sales in dollar terms and those adjusted for inflation remained above the pre-pandemic trend in April.
We believe spending at retail stores, online and in restaurants will stay above that trend until there is a hit to total income, most likely once the job market starts to contract. Americans are unlikely to curtail their spending until it becomes necessary.
Inside the data
Sales of automobiles and parts, the largest component of total sales, bounced back at 0.4% on the month.
Sales also rose for online purchases (up 1.2%), building materials (0.5%), health care products (0.9%) and at general merchandise stores (0.9%).
The 0.8% drop in gasoline sales was surprising given the fact that gasoline prices rose during the reporting period.
