US retail sales miss expectations, but core sales strong

US retail sales increased less than expected in April, but the underlying trend was solid, suggesting that consumer spending likely remained strong early in the second quarter, despite growing risks of a recession this year.

Retail sales rose 0.4 per cent last month, the Commerce Department said on Tuesday. Data for March was revised slightly lower to show sales dropping 0.7 per cent instead of 0.6 per cent as previously reported. Economists polled by Reuters had forecast sales rebounding 0.8 per cent.

Retail sales are mostly goods, which are typically bought on credit, and are not adjusted for inflation. Food services and drinking places are the only services category in the retail sales report.

The rise in retail sales added to strong job growth in April in suggesting that the economy was experiencing a spring revival after activity slowed in February and March. Spending is being underpinned by strong wage gains thanks to a tight labor market.

Some households still have savings accumulated during the COVID-19 pandemic. Economists are forecasting a recession as the cumulative and delayed effects of the Federal Reserve’s fastest interest rate hiking campaign since the 1980s to tame inflation start to have a broader impact on the economy.

Banks are also tightening lending standards, which could make credit inaccessible to some consumers.

Excluding automobiles, gasoline, building materials and food services, retail sales rebounded 0.7 per cent last month. Data for March was revised slightly down to show these so-called core retail sales slipping 0.4 per cent instead of 0.3 per cent as previously reported.

Core retail sales correspond most closely with the consumer spending component of gross domestic product. Consumer spending, which accounts for more than two-thirds of US economic activity, accelerated in the first quarter, offsetting the drag on GDP growth from an inventory liquidation.

The economy grew at a 1.1 per cent annualized rate last quarter. The Atlanta Fed is currently estimating GDP rising at a 2.7 per cent pace in the second quarter.