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Retail sales rose 0.9% in April as consumers show resilience – Morning call

Retail sales in the U.S. rose 0.9% in April, underscoring the ability of Americans to continue to increase spending, even as inflation remains at a nearly 40-year high.

The increase was driven by sales of cars, electronics and restaurants, the trade ministry said on Tuesday.

Even with inflation, which was 0.3% monthly in April, sales rose. Gas prices fell slightly last month, holding back inflation, after rising in March after Russia’s invasion of Ukraine.

Consumers are providing critical support to the economy even after a year later there is a rise in prices for gas, food, rent and other basic necessities. The economy contracted in the first three months of the year, but consumer and business spending continued to increase at a healthy pace.

“Never betting against an American consumer has always been a good saying,” said Paul Ashworth, chief economist at consulting firm Capital Economics in a note to clients. “Despite rising prices affecting their purchasing power, the US consumer now seems to be keeping the global economy afloat alone.”

Tuesday’s report also showed that sales in March were revised much higher, up 1.4% from 0.7%. As a result, spending even rose this month after adjusting for inflation, which rose to 1.2% as gas prices rose. The revision suggests that the economy is likely to have shrunk by less than 1.4% of the cut reported last month.

Consumer power makes a recession much less likely, at least soon, Ashworth said. But it also keeps pressure on the Federal Reserve to tighten borrowing spending to cool the economy.

Strong hiring, a rapid rise in wages and a healthy level of savings – on average – strengthened consumer financial health, despite a sharp rise in consumer prices of 8.3% in April compared to a year ago. Growth was just below the four-decade high reached in March.

However, economists are watching closely to see if consumer spending can continue to outpace inflation. Slowing costs will reduce economic growth. While this could lower inflation, it also threatens to push the economy into recession.

Inflation continues to hamper the activities of many retailers, even as sales increase. On Tuesday, Walmart reported an unexpected drop in first-quarter earnings, even as sales rose. Company executives said rising fuel, food and labor costs have increased its costs.

And for low-income Americans, inflation takes more serious losses and forces many people to adjust their spending models. Walmart executives told analysts during a conference on Tuesday that some customers are switching to cheaper brands from national brands, especially meat for lunch, as they juggle with rising costs.

However, the reliable sales figures in the government report are also impressive, as retail sales cover only about one-third of consumer spending and the rest goes to services such as travel, haircuts and health care. Airlines and hotels are also reporting high sales as more people go on trips after postponing trips for two years.

Retail sales figures suggest that some supply chains may weaken. Sales at car dealers increased by 2.2%, in electronics stores – by 1%, in furniture – by 0.7%.

Shopping in online stores jumped by 2.1%, and in restaurants and bars – by 2%.

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The steady growth in consumer demand, fueled by a strong labor market, is a key reason why the Federal Reserve has accelerated its efforts to boost lending and cool the economy. So Fed Chairman Jerome Powell hopes to bring down inflation without causing a recession.

The Fed raised the short-term reference interest rate it controls by half a point at a policy meeting earlier this month, which is twice the usual increase. Powell also signaled that the Fed is likely to make the fastest rate of interest rate hikes in 33 years to bring inflation to a halt.

Several factors allow consumers to continue spending even as prices rise. Wages rose rapidly as businesses, which struggled to fill a record high number of vacancies, were forced to offer more generous wages.

The average hourly wage, excluding managers, rose 6.4% in April from a year earlier, one of the fastest annual gains in four decades. Although this is below the inflation rate, in some areas the wages of workers are rising in line with inflation.

In April, hourly wages in restaurants, bars, hotels and the entertainment industry – excluding managers – rose 11% from a year earlier. This is above the 8.3% inflation rate this month.

Strong hiring also increases costs by simply increasing the number of people earning. This year, employers have created 2 million jobs as the unemployment rate has fallen to 3.6%, a nearly half-century low.

And in general, consumers have more cash. Last year’s stimulus checks pumped up the bank accounts of many Americans, including low-income Americans. In 2021, people also spent less on travel, entertainment and food. As a result, economists have estimated that U.S. consumers have about $ 2 trillion in savings than they could based on pandemic trends.

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