Economists are divided on the strength of the U.S. consumer, with April's retail sales report on May 14 set to test the impact of high gas prices against robust spending momentum.
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US April retail sales to show 0.6% gain amid inflation test
U.S. retail sales are expected to show a moderate 0.6% increase in April, a significant cooling from the 1.7% surge a month prior, as the consumer navigates a complex environment of rising gasoline prices and supportive tax refunds. The report, due from the Census Bureau on May 14, is being closely watched for signs of consumer resilience, with forecasts ranging widely from a 0.2% to an 0.8% gain.
"The real test will come in May, by which point the flow of tax refunds will have tapered off significantly, while high gas prices probably will remain elevated," Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, wrote in a note.
Beneath the headline consensus, estimates for April's performance are unusually divided. Economists at Goldman Sachs and J.P. Morgan project a mere 0.2% month-over-month increase, citing a likely slowdown after several months of solid gains. In contrast, the Federal Reserve Bank of Chicago’s National Retail Spending Indicator points to a stronger 0.8% monthly advance. Data from private card spending was robust, with PNC logging a 5.3% year-over-year rise in April, while Bank of America saw a 4.8% increase.
A strong report could intensify concerns about persistent inflation, particularly after the Producer Price Index surged 6.0% annually in April, its largest increase since December 2022. Such a result would pressure the Federal Reserve to maintain its hawkish stance on interest rates. Conversely, a weaker-than-expected number might suggest a consumer pullback, raising concerns about economic growth but potentially opening the door for future rate cuts.
The Gas Price Squeeze
Much of March's retail sales jump was attributed to a 15.5% monthly spike in gasoline sales, a figure that reflected higher prices at the pump more than increased demand. While gas prices remained elevated in April, economists expect the impact on the headline number to be less severe, contributing an estimated 0.3 percentage points to the total. Instead of drastically cutting back, data suggests households are dipping into savings to cover the higher costs. This trend is supported temporarily by larger average tax refunds, though this benefit is not evenly distributed.
An Uneven Consumer
The spending momentum is increasingly being driven by higher-income households, according to the Bank of America Institute. Its analysis of credit and debit card data shows that lower- and middle-income households are beginning to pull back, particularly on discretionary "nice-to-have" goods and services. This divergence highlights the varied impact of inflation on different consumer segments. Further evidence of a selective slowdown comes from weaker vehicle sales reported for April by both the Bureau of Economic Analysis and Cox Automotive, suggesting caution on big-ticket purchases.
This article is for informational purposes only and does not constitute investment advice.
[1] April Retail Sales Should Remain Solid, Even With Higher Gas Prices - Barron's[2] Brazil's retail sales beat forecasts, hit record high in March[3] Hot April producer price number adds to inflation worries[4] Wholesale inflation jumps 6% in April on annual basis, biggest increase since 2022[5] Grocery prices jumped more in April than they had in nearly four years
