WASHINGTON – U.S. retail sales rose sharply in April as consumers improved supply and bought motor vehicles in frequent restaurants, providing a strong boost to the economy 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 and allayed fears that the economy was heading for a recession. Companies rely on rising wages and the huge savings costs accumulated during the COVID-19 epidemic, with shocks for scarce workers. Consumers are also increasing their use of credit cards.
Paul Ashworth, chief economist at New York Capital Economics, said, “Given this strength from consumers, the assumption that the US economy is at risk of imminent recession is misleading.”
Retail sales rose 0.9% last month, the Commerce Department said Tuesday. The March data was revised higher to show sales growth of 1.4% instead of 0.7% as previously reported. The April retail sales growth, which reflected both strong demand and high prices, was in line with economists’ expectations.
Retail sales are mostly commodities, and are not adjusted for inflation, which seems to have peaked 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 service stations. Pump prices hit record highs since April. They, however, averaged an all-time high of $ 4,523 per gallon as of Monday, 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%.
Sales of electronics and appliances retailers jumped 1.0%, while receipts at furniture stores rose 0.7%. But sales of construction materials, garden tools and supplies fell 0.1%. Sales of sporting goods, hobbies, musical instruments and bookstores fell 0.5%.
Overall credit and debit card spending rose 13% year-on-year in April, according to Bank of America. The bank noted that when inflation led to higher spending, it was “clear consumer power goes beyond that.” Consumer price inflation rose to 8.3% year-on-year in April.
A tight labor market is creating strong wages and allowing cash-shrinking consumers to take second jobs or take extra shifts, which is somewhat of a deterrent against inflation. Families are sitting on at least $ 2 trillion in additional savings, some of which are being set up to sustain spending.
But as the Federal Reserve adopts an aggressive monetary policy stance to cool demand and reduce inflation, retail sales are expected to slow by the end of 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 subsequent meeting in June and July.
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 in these so-called core retail sales from 0.7% 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 on equipment and strong business investment helped reduce domestic demand in the first quarter, even as GDP contracted at an annual rate of 1.4% due to record trade deficits and slightly modest inventory savings compared to the October-December quarter. (Reporting by Lucia Mutikani, Editing by Chizu Nomiyama)