Retail Sales Rebound Slightly In April, As Consumers Keep Spending

Retail sales rose 0.4% in April, after two months of declines, with American consumers showing continued spending power in the face of interest rate hikes, inflation and economic uncertainty.

The Commerce Department, in releasing the April sales report cautioned that the slight increase should be viewed as essentially flat over the previous month, due to the potential variation of plus or minus 0.5%.

The month-over month change was less that the 0.8% gain that was the consensus forecast.

April’s slight rebound further illustrates the difficulty the Federal Reserve has had in bringing inflation under control.

Compared to the prior year, sales were up 1.6% above April, 2022. Total sales, including food services, were $686.1 billion for April.

April’s slight gain followed two months of spending drops. Sales fell more than expected in March, after a dip in February.

The revised drop in March was 0.7%. The revised decline for February was 0.2%.

Consumers are shifting spending

Katie Thomas, who leads the Kearney Consumer Institute, an internal think tank at the global strategy and management firm, Kearney, said in a interview before the retail sales release that she expected spending to be “stable” in April.

Thomas said she expected shifts in spending in categories to be more significant than the overall spending number.

“You see that consumers have really gotten increasingly savvy, and they’re able to make the tradeoffs they need to do across categories,” Thomas said. A consumer may, she said, be scrimping on certain items, but continue to spend on things like concert tickets and travel.

“That’s the challenge with retail sales, you don’t really see that experiential element where consumers are spending,” Thomas said.

Food and beverage sales show strong gains

The Commerce Department reported that non-store retailers were up 8% from the prior year, and food and beverage establishments were up 9.4% from April, 2022.

Jonah Ellin, Chief Product Officer at 1010Data, a retail analytics firm, also expects that category shifts and spending decisions by consumers wil hold signals of where the economy is heading.

“I suspect durables and hard goods, general merchandise are going to be hit more so than others,” Ellin said in an interview before the retail sales release. “Part of it is people already bought those things during Covid, when they were stuck at home,” he said.

Now, he said, people are dealing with the fact that they’ve spent a lot of their savings, interest rates are going up, credit card balances are up, and summer travel costs are on the horizon.

“I think you’re going to start seeing retail taking a hit as people deal with the reality of their credit cards, as they deal with the reality of where they want to go this summer and what it’s going to cost them,” Ellin said.

Home Depot sales down

A shift away from home improvement spending was shown in Home Depot’s first quarter results, which were released early today, before the retail sales report.

Home Depot reported that sales were down 4.2% for the quarter. The home improvement retailer also revised its full year guidance to reflect what it called “a moderation in the home improvement market” after record spending during the pandemic years.

Home Depot now expects fiscal 2023 sales to be down between 2% and 5%, and earnings per share to be down 7% to 13% for the year.