Retail sales rose 0.9 percent in April

Retail sales rose 0.9 percent in April as a rebound in automobile sales and a pickup in dining powered another monthly increase in consumer spending, according to data released Tuesday by the Census Bureau.

Sales by retailers, restaurants and bars totaled $677.7 billion in April, according to the Census Bureau, up from a revised March total of $671.6 billion. Retail sales are adjusted for seasonal spending pattern changes, but not for inflation.

Economists expected retail sales to rise 1 percent last month after auto dealers reported a sharp pickup in sales and restaurant activity rose in April. Both were key drivers of the April increase in retail sales, which has steamed ahead despite inflation hitting an annual rate of 8.3 percent last month, according to Labor Department data.

Sales by restaurants and bars rose 2 percent in April, in line with a 1.9 percent monthly increase in March. Retail sales minus auto dealers and auto parts shops rose by 0.6 percent in April, and retail sales without the food and beverage industry rose 0.7 percent. 

“These broad increases reflect the continued strength of consumer demand in the US, despite rising economic risks. Retail sales have shown steady growth in recent months, despite the worsening outlook in consumer confidence,” wrote Cailin Birch, global economist at Economist Intelligence Unit, in a Tuesday analysis.

“However, strong growth in retail sales figures year on year also reflects steep inflation, as prices have also risen across the board in recent months.”

Federal stimulus and the speedy development of COVID-19 vaccines in the U.S. drove a surge in consumer spending that began in early 2021 and has stretched through the first half of this year. Consumer spending has been resilient even in the face of several waves of COVID-19, supply chain snarls and hiring troubles — all of which have fueled higher prices for many goods.

While the steady rise of retail sales has helped power a remarkably quick recovery for the U.S. economy, it also pushed inflation toward its highest annual rate in 40 years. The combination of unprecedented federal stimulus and several pandemic-driven supply chain issues — including material shortages, factory shutdowns, port bottlenecks and hiring issues — have left businesses unable to keep up consumer demand without major price increases.

Economists have hoped a shift in consumer spending from goods toward services would help reduce pressure on supply chains and help businesses keep up with demand overall. Even so, sales by non-store retailers, miscellaneous retailers, clothing stores, electronics and appliance stores, and department stores all rose in April.

“Pent-up demand is likely to continue to support retail spending through the summer months. High frequency data on air travel and hotel reservations suggest that activity is continuing apace,” Birch wrote.

“However, with consumer sentiment at the lowest level in more than a decade, steep inflation and further interest rates hikes will probably start to bite in the next 3-6 months.”

The Federal Reserve began in March a series of interest rate hikes meant to cool inflation by slowing down the U.S. economy. As households and businesses face higher borrowing costs, they are likely to spend less on goods and services already in high demand. Lower demand should theoretically for businesses to reduce prices and be less willing to give workers higher wages.

Even so, higher interest rates will do little to solve the pandemic-driven shutdowns in China, the economic fallout of the war in Ukraine, and deep supply chain backlogs that are also driving prices higher.

Updated at 10:14 a.m.