Early signs of consumer angst in April's retail sales report
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Illustration: Sarah Grillo/Axios. Stock: Getty Images
The good news in Thursday morning's April retail sales report is that the overall numbers are holding up fine. The bad news is that there are early signs of higher energy prices crimping Americans' spending on everything else.
The big picture: One of the great questions for the economy in the months ahead is how much demand destruction there will be from the blockade of the Strait of Hormuz and the resulting surge in prices for fuel and other commodities.
- The early evidence is good at first glance: Even categories of stores outside gas stations were positive in the April retail numbers.
- But the data looks not-so-great when you consider the counterfactual — in particular, that Americans have been receiving extra-large tax refunds this spring due to last year's tax cut legislation.
- Against that backdrop, the April numbers are fine, but hardly suggestive of the kind of spring spending surge that forecasters had banked on.
By the numbers: Overall retail sales rose at a perfectly solid 0.5% in April, in line with expectations.
- It was powered significantly by higher spending at gas stations — up 2.8%, following a 13.7% rise in March.
- Excluding gas station spending, retail sales were up 0.3% in April, which implies a drop in inflation-adjusted spending, in light of a 0.6% rise in the Consumer Price Index last month.
The intrigue: Several retail categories saw outright declines in April spending consistent with Americans pulling back on discretionary purchases.
- Sales at auto dealers were down 0.5%, furniture and home furnishings store sales were down 2%, clothing and accessories stores down 1.5% and department store sales down 3.2%.
- An exception to the rule: Restaurant and bar sales were up 0.6%, suggesting that with higher gasoline prices, Americans might be buying less stuff but are still eating out.
Yes, but: "The main factor behind the resilience in retail sales ... now is fading fast," wrote Oliver Allen, senior U.S. economist at Pantheon Macro.
- Individual income tax refunds were $22 billion higher than a year earlier, he calculated, equivalent to 3% of monthly retail sales and bigger than the hit from higher gasoline prices.
- "But the flow of refunds will taper dramatically in May, leaving consumers far more exposed to the surge in fuel costs," Allen wrote.
- "With confidence depressed, the labor market weak, and the personal saving rate already very low, we expect that to prompt a meaningful pullback in discretionary spending" in May and June.
Reality check: For years, anyone who has predicted a major falloff in Americans' spending has looked foolish.
- At the same time, it wouldn't take too much of a pullback to weaken the overall growth trajectory, given the outsized role consumer spending has played in powering GDP forward.
The bottom line: Spending is resilient for now, but let's see how it holds up if high gas prices persist without additional tax refunds to boost household finances.
