WASHINGTON – U.S. retail sales rose sharply in April as consumers bought more motor vehicles amid improved supply and rising spending on restaurants, giving the economy a strong boost early in the second quarter.
The massive increase in retail sales reported by the Commerce Department on Tuesday suggested that demand remained strong despite high inflation, consumer sentiment and rising interest rates.
This has allayed fears of an impending recession. The underlying strength of the economy was underscored by other data that accelerated production in factories in April.
Rising wages are based on shocks for vulnerable workers and the huge savings costs accumulated during the COVID-19 epidemic. Consumers are also increasing their use of credit cards. But spending power means the Federal Reserve has to stick to its demand-cooling plan.
Matthew Massicot, an economist at Citigroup in New York, said “concerns about the negative risks of strong retail growth should be limited and Fed officials should focus on raising interest rates to deal with extremely high inflation.” “At some point, rising prices will dampen consumer demand and slow inflation, but for now, nominal income growth and strong tailwind demand for available consumer credit are driving.”
Retail sales rose 0.9% last month. March data was revised higher to show sales growth of 1.4% instead of 0.5% as previously reported. The April retail sales growth, which reflected both strong demand and high prices, was in line with economists’ expectations. Sales grew 8.2% year-on-year.
Retail sales are mostly composed of products and are not adjusted for inflation, which seems to have reached the top. Consumer price inflation rose to 8.3% year-on-year in April.
Receipts at auto dealerships led retail sales growth, which rebounded 2.2% after falling 1.6% in March. This offset a 2.7% decline in sales at petrol stations. Pump prices fell to record highs in April. They, however, averaged an all-time high of $ 4,523 per gallon as of Tuesday, according to the AAA.
Excluding petrol, retail sales rose 1.3%. Receipts at bars and restaurants, the only service segment in retail sales reports, increased 2.0%. Clothing store sales rose 0.8% as many workers returned to the office. Online store sales rose 2.1%.
There were also strong gains in electronics and appliance retailers as well as in furniture stores. But sales of construction materials, garden tools and supplies fell 0.1%. Sales of sporting goods, hobbies, musical instruments and bookstores fell 0.5%.
The stock traded higher on Wall Street. The dollar depreciated against the basket of currencies. U.S. Treasury yields rise.
With a record 11.5 million jobs created at the end of March, rising wages and allowing cash-strapped consumers to take a second job or take extra shifts, providing some cushioning against inflation. Families are sitting on at least $ 2 trillion in additional savings, some of which are being set up to sustain spending. Compensation for American workers was the biggest gain in more than three decades in the first quarter.
But with the Fed taking an aggressive monetary policy stance, retail sales are expected to slow down later this year.
The US Federal Reserve has raised its policy interest rate by 75 basis points since March. The Fed is expected to raise the rate by half a percentage point at each of its subsequent policy meetings in June and July.
The National Retail Federation welcomed the increase in sales as a demonstration of consumer resilience, but called on the White House and the US Congress to pass legislation to lift tariffs on Chinese goods, fix supply chains and talk about immigration reform to ease the tight labor market.
Home Depot Inc. raised its annual profit and sales forecast on Tuesday as it reported first-quarter comparable sales growth, while Walmart reported sharp declines in quarterly earnings and a decline in its full-year profit outlook.
Excluding automobiles, petrol, building materials and food services, retail sales rose 1.0% in April. The March data was also revised higher to show a 1.1% increase instead of a 0.1% decline in these so-called core retail sales as previously reported.
Original retail sales most closely match the consumer spending component of total domestic products. The sharp rise in core retail sales last month suggests that consumer spending has made a strong start to the second quarter.
Strong consumer spending and strong business investment in equipment helped reduce domestic demand in the first quarter, even as GDP contracted at an annual rate of 1.4%, leading to record trade deficits and a slight restraint on inventory savings compared to October-December. Duration
The Atlanta Fed has raised its second-quarter GDP growth forecast from 1.8% to 2.5%.
A separate Fed report on Tuesday found that output output rose 0.8% last month, in line with March’s growth, and beat economists’ expectations of a 0.4% gain. Auto plant production rose 3.9% last month after accelerating 8.3% in March.
As a result, capacity utilization for the manufacturing sector, a measure of how companies are fully utilizing their resources, rose 0.6 percentage points to 79.2% in April. It was the highest level since April 2007 and rose 1.1 percentage points from its long-term average.
Gas Foucher, chief economist at PNC Financial in Pittsburgh, said: “Rising power utilization rates further prove that supply chain problems are declining, and higher output will help slow inflation.”
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)