Consumers continue to defy inflation

Americans keep spending despite worrying about inflation.

Why it matters: It’s another sign that the underlying economy remains relatively strong even as fighting inflation is now President Biden's "top domestic priority."

Driving the news: Walmart, the biggest U.S. retailer by revenue, missed on quarterly earnings but beat expectations with sales and bumped its top-line forecast for the year.

• Home Depot today also raised its outlook for the year as it reported its largest ever first-quarter sales.
• Retail sales in the U.S. — which include online, stores and restaurants — grew 0.9% overall in April from March compared to a 0.3% rise in the Consumer Price Index, government data out today shows.
• Year-over-year retail sales rose 8.2%, compared to an 8.3% rise in inflation.

What they’re saying: “Given this show of strength from consumers, speculation that the US economy is in danger of an imminent plunge into recession [looks] badly misplaced,” Paul Ashworth, Capital Economics’ chief North American economist, noted.

Yes, but: Higher costs — for both businesses and consumers — are taking their toll.

• Walmart, for example, reported a nearly 25% drop in net income last quarter compared to last year due in part to rising fuel and food costs.
• Credit card usage among consumers has been steadily rising this year and is expected to keep rising.

• Of note: Fed chair Jerome Powell said today he wouldn't hesitate to keep raising rates until inflation comes down.

Meanwhile, both Walmart and Home Depot customers spent more in the quarter, but they didn't shop more.

• Walmart reported a 3% increase in comparable sales for the quarter over last year, but the number of transactions was flat.
• Home Depot actually saw transactions fall 8.2%.

Our thought bubble: Inflation's fingerprints are all over this. Rising prices likely helped push sales receipt values up as visits decreased.

What to watch: Target and Lowe’s report earnings tomorrow.