U.S. retail sales increased less than expected in April, but the underlying trend was solid, suggesting that consumer spending got off to a strong start in the second quarter, defying expectations of a recession this year.
The smaller-than-expected rebound in retail sales last month reported by the Commerce Department on Tuesday likely reflected a moderate rise in receipts at auto dealerships, which some economists said was because of lower prices. Automobile manufacturers reported a surge in unit sales in April.
Outright declines in spending will be needed in the remaining two months of the second quarter to spur a contraction in real personal consumption,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “This risks another delay in the long-awaited recession, likely due to ongoing revenge spending, excess savings, and sturdy income growth.”
Retail sales rose 0.4% last month. Data for March was revised slightly lower to show sales dropping 0.7% instead of 0.6% as previously reported. Economists polled by Reuters had forecast sales rebounding 0.8%.
Retail sales are mostly goods, which are typically bought on credit, and are not adjusted for inflation. Receipts at auto dealers rose 0.4% after back-to-back decreases.
That adds to the signs that vehicle prices are now falling, weighing on the nominal value of sales,” said Andrew Hunter, deputy chief economist at Capital Economics.
Nevertheless, higher borrowing costs and prices are taking a toll on consumers. Sales at building material and garden equipment supplies dealers increased 0.5%. Online retail sales surged 1.2%, likely as price-conscious consumers continue to seek discounts and deals. Furniture store sales fell 0.7%, while receipts at electronics and appliance stores dropped 0.5%.
Spending on hobbies decreased 3.3%, but consumers stepped up purchases at health and personal care stores. Sales at food services and drinking places, the only services category in the retail sales report, rose 0.6%. Economists view dining out as a key indicator of household finances.