Retail sales are expected to have grown at a slower pace in April, reflecting growing concerns that consumers are finally starting to crack under the pressure of higher interest rates and inflation.
Economists predict April’s retail sales will tick up by 0.4% from the prior month, marking a deceleration from March’s 0.7% increase, according to FactSet consensus estimates. Excluding the more volatile auto and fuel categories, retail sales are projected to increase about 0.3% month-over-month.
The report will be released Wednesday morning.
If sales growth slows, the report would join a growing chorus of economic data points suggesting that Americans are indeed starting to pull back on spending.
In the first quarter of 2024, personal consumption grew by 2.5%, down from a 3.3% rate in the fourth quarter of 2023, according to the latest data from the Bureau of Economic Analysis. The slower pace was largely attributed to a 0.4% decline in goods consumption.
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“Real goods spending declined, and we think that may be a first indication that consumer spending is at last softening,” wrote Andrew Hollenhorst, an economist at Citi.
George Cipolloni, portfolio manager at Penn Mutual Asset Management, notes that while consumers are “maintaining strength for the most part,” there are signs of weakness across the consumer economy. That’s especially true among lower-income consumers, who feel the effects of elevated interest rates and inflation more acutely than wealthier shoppers.
Higher-income consumers are holding up better, Cipolloni added, but recent earnings reports from retailers catering to wealthier shoppers suggest that even they are becoming more discerning about how they spend.
“We are seeing an overall more cautious consumer,” said
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CEO Joanne Crevoiserat in a call with investors in early May.
It doesn’t help that the labor market has started to cool off, with the unemployment rate rising 3.9% in April. Wage growth has also slowed. Average hourly earnings rose 3.9% year over year in April, receding from 4.1% in March. Wage growth at such rates has little impact when inflation is still running at a similar pace: The consumer price index accelerated 3.5% on an annual basis in March. April’s CPI report comes out Wednesday morning.
Still, betting against the U.S. consumer hasn’t been a winning stance over the past couple of years. March’s retail sales report, for instance, came in much hotter than most economists expected. Consumer bulls, such as Yardeni Research president Ed Yardeni, say that as long as the labor market is solid enough and balance sheets remain healthy, Americans will continue to shop.
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“We continue to predict that consumer spending will grow, and so will the economy,” Yardeni wrote in a note Monday. “That’s our story, and we are sticking to it.”
Write to Sabrina Escobar at sabrina.escobar@barrons.com
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Read More: Retail Sales Data Arrive Today. The Report Is Another Test of Consumer Demand.
2024-05-15 04:30:00