About as expected – consumers spending at a modest pace.
Retail sales rose by 0.5 percent in April, just shy of market expectations. This figure was held down by a small decline in auto spending (expected given the already reported slip in unit auto sales) but boosted by another jump in sales at gasoline stations (no surprise given the sharp rise in gasoline prices). These items roughly offset each other, with total retail sales less autos and gasoline stations up by 0.5 percent.
The key measure of “core” retail sales (the retail control group, which removes autos, gasoline, food, and building materials) also grew by 0.5 percent, a tad faster than market expectations. A very rough adjustment to these figures (since they are reported in nominal terms) by subtracting the core CPI rate for the month (+0.4 percent) gives an estimate of real core retail sales spending growth of 0.1 percent for the month. Up, but not strong.
Consumers were still increasing their spending (even in inflation adjusted terms) in April, despite the war with Iran and record low consumer sentiment. But this slow pace of estimated real core retail sales suggests that the pace of consumer spending may be slowing. Retail sales are a subset of the broader Personal Consumption Expenditures that feeds into the GDP figures, and the services spending that is not captured in retail sales likely grew at a faster pace – so real PCE is likely still growing, albeit at a slower pace.
Separately, weekly jobless claims remained at low levels (edging up to 211,000 for the most recent week), as did continuing claims. With firms continuing to hold tight to their workers and consumer spending continuing to move higher (even if at a slower pace), concerns about the Fed’s dual mandate should be concentrated on inflation, which is well above the Fed’s 2.0 percent goal, rather than maximum employment, with unemployment still at about full-employment levels. Unless things change significantly between now and the June FOMC meeting, the odds of any Fed easing should remain close to zero.
David W. Berson, Ph.D., CBE
Chief Economist
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