Despite absorbing multiple blows, the consumer is still standing

Summary

Despite rising interest rates, high inflation and product shortages, retailers reported increased spending in April and upward revisions to the prior month, which suggests a better Q1 for consumer spending than first reported.

Consumers increase spending in face of rising costs

Amid the rollercoaster ride in financial markets over the past several weeks, one of the main concerns has been the degree to which consumer spending can hold up in the face of soaring inflation. It is inevitable that when prices grow faster than wages, at some point difficult choices will have to be made...but not today. Retail sales climbed 0.9% in April after an upwardly revised gain of 1.4% inMarch. We break out the inflation-adjusted figures below, but the main takeaway is that despite all the obvious reasons to expect otherwise, retail spending has continued to grow.

Auto and gas sales are notoriously choppy even in the best of times, that volatility has become even more pronounced amid a supply chain crisis and big price swings. Retail sales ex-autos and gas shot up 1.0% in April following sharp upward revisions to the prior month. Control group sales exclude building materials as well, and what remains is a good proxy for overall personal consumption in the GDP report. This key category grew 1.0% in April (+0.6% when adjusted for inflation), and an initially reported decline in March was revised to a net increase of 1.1%. To paraphrase Mark Twain, the death of the consumer was greatly exaggerated.

Believe it or not, there was some indication of a slight reprieve in consumer goods inflation for April. Prices did something they have not done in seventeen months–they boosted real retail sales. Last week we learned consumer prices rose 0.3% in April, but goods prices slid 0.3%. With the retail sales report mostly covering goods spending, the decline in prices suggests real retail sales rose a stronger1.2% during the month.

Gains in real sales were rather broad-based across retailers with just grocery, building material and sporting goods stores seeing sales decline last month. This is perhaps unsurprising since price pressures were hottest for these store types who saw the largest gain in inflation for April of all retailers. This is particularly true in groceries where consumers continue to face elevated food prices due to supply disruptions and the continued conflict in Ukraine.

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