Retail Sales as trade war bellwether
|Summary
Consumer goods spending has taken on new-found significance amid a trade war. We unpack how the fingerprints of tariffs are all over the April retail sales report and what to watch for clues about whether the deescalation with China came quickly enough to blunt the economic fallout.
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Retail Sales rose 0.1% in April. That was a bit better than expected, and it comes on the heels of a sharp upward revision to March sales numbers. One thing that did not go exactly according to script was that auto & parts dealers saw a decline in sales in April. Yet, this still reflects tariff worries boosting sales as the 0.1% pullback comes after a 5.5% surge in March. Another area that might have seen a tariff-related demand surge last month is the store category that sells building materials & garden supplies. Those stores saw a 2.9% increase in March but just a 0.8% pick-up in April. The lack of 'payback' in sales suggests some tariff pull-forward could have remained in April.
Because it largely represents goods spending, which comprises less than a third of overall personal consumption in the United States, the retail sales report is not typically an A-lister among economic indicators…until now. For the next few months at least, the retail sales report is set to be center stage as we seek to measure the impact of tariffs. While import duties can introduce pass-through effect to the service sector, it is goods that are apt to be the most impacted. We may eventually see these impacts manifested through product scarcity or higher prices, but the first action will simply be evident in the sales activity.
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