Core Sales Strong Despite Lower Than Expected U.S. Retail Sales

According to the Commerce Department, U.S. retail sales for April were weaker than expected, but the underlying tone was strong and consumer spending was robust in the early months of the second quarter. This suggests a possibility of transition. The increase in retail sales was recorded at 0.4% last month, while data for March was revised down slightly to show sales were down 0.7% instead of the previously reported 0.6%. Economists polled by Reuters expected sales to recover by 0.8%. Retail sales mostly involve commodities purchased on credit and are not adjusted for inflation. The only service sectors included in the retail sales report are food and drink establishments.

The rise in retail sales contributes to solid job growth in April, indicating a spring recovery following slowed economic activity in February and March. Furnished with wage increases from a tight job market, some households have accumulated savings, even during the COVID-19 pandemic. However, economists anticipate a recession as the cumulative and lagged effects of the Federal Reserve’s anti-inflation rate-hiking campaign severely impact the economy. Banks are also tightening lending standards, which could detrimentally impact some people’s credit.

Retail sales, excluding autos, gasoline, building materials, and food services, rose to 0.7% last month. Data for March was slightly revised downward, with core retail sales declining by 0.4%. Core retail sales more closely resemble the private consumption part of the economy’s gross domestic product. Consumer spending is the primary driver of U.S. economic activity, and in Q1, it offset a drag on GDP growth from inventory liquidity. Last quarter, the economy expanded at a rate of 1.1%, while the Atlanta Fed anticipates GDP to grow at a rate of 2.7% in Q2. The report was filed by Lucia Mutikani and edited by Chizu Nomiyama based on the Thomson Reuters Trust Principles.

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