What the stall in April Retail Sales says about the consumer

Summary

There are plenty of reasons to be skeptical about the sustainability of consumer spending, but today's soft print for retail sales says more about one-off factors than it does a meaningful downshift in spending activity.

Higher rates finally slowing consumer spending?

One theme of this Fed tightening cycle, now entering its third year, is how consumers have been undaunted by higher borrowing costs. Yet, the fact that retail sales stalled in April is not necessarily a sign the consumer is spent; but for once at least it does not show continued evidence of an unstoppable consumer.

Not only did the unchanged headline number come in short of expectations, but the control group aggregation of sales categories gave back 0.3% of last month's 1.0% gain (chart).

There are reasons to be skeptical of the sustainability of consumer spending beyond today's retail sales report, such as the depletion of pandemic-era savings and the unsustainability of ever-more consumer credit growth to sustain spending. In short, we see reasons for the consumer to eventually take a breather, but we are not convinced that this soft print is evidence of that exhaustion.

There are more than a few special factors to consider that make today's report less compelling as evidence of a major consumer pivot. For starters, the timing of Easter was earlier than usual, a dynamic that flatters March data and potentially weighs on April, the month that usually includes that spring holiday and the associated surge in consumer outlays that goes with it.

Another dynamic is online spending reflected in the non-store retailer category. Once a tiny component, consumers now spend more online than they do anywhere else, except when they purchase an automobile. The top-dog in this space, Amazon, hosted its Spring Sales Event in the final week of March. It is not uncommon for other online sellers to offer concurrent discounts. The upshot is many households pulled forward demand, buying a bunch of stuff online in March, so no surprise to see that category down 1.2% in April (chart).

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