The latest data shows that U.S. retail sales remained stagnant in April, with no growth recorded compared to the previous month. This surprising development follows a slight downward revision to the 0.6% increase in sales observed in March, previously reported as 0.7%. Analysts had predicted a 0.4% rise in sales during April. Despite this, sales still rose by 3.0% year-on-year in April.
As inflation continues to bite and interest rates become increasingly burdensome, consumer spending is starting to lose momentum. While many people are still prioritizing essential goods over luxury items due to the high price environment, retail sales overall have managed to hold their own thanks to the strength of the labour market.
In fact, the Bank of America Institute recently noted that lower-income spending growth has actually outpaced that of higher-income households in April, although it sounded a note of caution given the apparent cooling in the labour market. Additionally, rising property insurance costs were identified as a significant hurdle for consumers.
Stripping out the effects of automotive, petrol, materials for construction, and food services, core retail sales actually declined by 0.3% in April, following a downwardly revised 1.0% increase in March (previously reported as 1.1%). This metric correlates most closely with the consumer spending component of Gross Domestic Product (GDP), which expanded at an annualized rate of 2.5% in Q1, driving overall economic growth to a 1.6% pace.
The Federal Reserve is currently being tipped to make a September interest rate cut, in light of the recent reduction in inflation, which came in lower than expected in April. Financial markets are anticipating that retail sales will show a modest gain of 0.4% for April when official figures are published later in the week.
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