WASHINGTON- US retail sales rose strongly in April as consumers bought more motor vehicles amid an improvement in supply and increased spending at restaurants, providing a powerful boost to the economy at the start of the second quarter.
The broad rise in retail sales reported by the Commerce Department on Tuesday suggested demand was holding strong despite headwinds from high inflation, souring consumer sentiment and rising interest rates.
It assuaged fears of an imminent recession. The economy’s underlying strength was underscored by other data showing production at factories accelerated in April.
Rising wages fueled by a scramble for scarce workers and massive savings accumulated during the COVID-19 pandemic are underpinning spending. Consumers are also increasing their usage of credit cards. But the strength in spending means the Federal Reserve will need to stick with its plan to cool demand.
“The strong retail sales should limit concerns over downside risks to growth and keep Fed officials firmly focused on raising interest rates to address too-high inflation,” said Matthew Massicotte, an economist at Citigroup in New York. “At some point, rising prices will damp consumer demand and slow inflation, but for now the strong tailwind from nominal income growth and available consumer credit is driving demand.”
Retail sales rose 0.9 percent last month. Data for March was revised higher to show sales advancing 1.4 percent instead of 0.5 percent as previously reported. April’s increase in retail sales, which reflected both strong demand and higher prices, was in line with economists’ expectations. Sales rose 8.2 percent on a year-on-year basis.
Retail sales are mostly comprised of goods and are not adjusted for inflation, which appears to have peaked. Consumer price inflation increased 8.3 percent year-on-year in April.
The increase in retail sales was led by receipts at auto dealerships, which rebounded 2.2 percent after falling 1.6 percent in March. That offset a 2.7 percent decline in sales at gasoline stations. Prices at the pump retreated from record highs in April. They have, however, since surged to an average all-time high of $4.523 per gallon as of Tuesday, according to AAA.
Excluding gasoline, retail sales rose 1.3 percent. Receipts at bars and restaurants, the only services category in the retail sales report, increased 2.0 percent. Clothing store sales gained 0.8 percent as many workers return to offices. Online store sales advanced 2.1 percent.
There were also strong gains in sales at electronics and appliance retailers as well as furniture stores. But sales at building material, garden equipment and supplies stores dipped 0.1 percent. Sales at sporting goods, hobby, musical instrument and book stores fell 0.5 percent.
Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. US Treasury yields rose.
With a record 11.5 million job openings at the end of March, wages are rising and allowing cash-squeezed consumers to take a second job or pick up extra shifts, providing some cushion against inflation. Households are sitting on at least $2 trillion in excess savings, some of which are being deployed to maintain spending. Compensation for American workers logged its largest gain in more than three decades in the first quarter. – Reuters
