Retail Sales Come in Below Expectations After 2 Months of Declines

Shoppers look at items displayed at a grocery store in Washington, DC, on February 15, 2023. - Retail sales in the United States rebounded in January, government data showed Wednesday, logging the biggest gain since early 2021 as policymakers watch for signs that consumer spending is cooling in the longer run. (Photo by Stefani Reynolds / AFP) (Photo by STEFANI REYNOLDS/AFP via Getty Images)

U.S. retail sales rose slightly in April but fell below expectations after two months of declines.

Retail sales are primarily goods and are not adjusted for inflation, while changes in the category are widely followed as an indicator of consumer spending.

Last month’s overall retail sales rose 0.4 percent last month at $686.1 billion, instead of the 0.7 percent increase that economists expected, according to the U.S. Census Department, on May 16.

March’s revised retail sales numbers dropped 0.7 percent, standing at $683.2 billion.

Core retail sales, excluding automobiles, gasoline, building materials and food services, rebounded 0.7 percent last month and correspond most closely with the consumer spending component of U.S. GDP.

In total, retail sales were up 0.5 percent over the same month in 2022.

Consumer Spending Slightly Grows in April

The American economy grew at a 1.1 percent annualized rate last quarter, while Goldman Sachs lifted its second-quarter GDP estimate by two-tenths of a percentage point to a 2 percent pace.

Meanwhile, consumer spending still appears to have increased in April, as Americans continued to make purchases at online retailers while eating more at restaurants and bars, despite signs of a looming hard recession.

Consumer spending accounts for around 70 percent of U.S. economic output, accelerated in the first quarter, with retail sales serving as a key barometer.

The rise in spending offset the drag on U.S. GDP growth from retailer inventory liquidation.

Spending is being boosted by rising wage gains resulting from a tight labor market, but high inflation and interest rates have caused consumers to be more selective in their purchases.

Online retail sales surged 1.2 percent as consumers continued to look for more discounted items.

Non-store retailers were up 8 percent from last year, while food and drink services rose 0.6 percent, up 9.4 percent from April 2022.

Economists closely watch dining expenses as a key indicator of household finances.

Consumers also spent more at health and personal care stores.

Manufacturing Witnesses a Boost

Meanwhile, the economy saw a boost from other data from May 16, showing 1 percent gains in overall industrial production last month after dropping 0.8 percent in March.

Manufacturing accounts for 11.3 percent of the U.S. economy and has been hamstrung by higher borrowing costs and supply sector issues.

Economists said that the industrial sector was benefiting from not overproducing prior to a recession.

“That approach is now paying off,” Tim Quinlan, a senior economist at Wells Fargo in Charlotte, North Carolina, told Reuters, adding, “When demand picks back up, rather than having to draw down inventory, firms that did not overproduce can increase output instead.”

However, consumers have slowed down purchases of big-ticket items, as inflation generally remains high.

The industrial sector was boosted by a 9.3 percent rise in motor vehicle production, as supply chain log jams started to ease, while car dealer purchases rose 0.4 percent after back-to-back declines.

Hard manufactured goods and nondurable products saw some gains in overall output,

Furniture store sales fell by 0.7 percent, while electronics and appliance stores tumbled 0.5 percent.

Building material purchases increased by 0.5 percent, which aligned with an improvement in the weakened housing market.

Twitter CEO Elon Musk predicted that the U.S. economy would be in for a hard ride until at least spring of 2024, as many executives and economists warn about the nation’s economic outlook.

“Tough sledding until spring next year is my best guess,” Musk posted on twitter in early April.

Musk was referring to Federal Reserve economists’ prediction of a “mild recession” later this year, followed by a gradual recovery over the next two years.

Reuters contributed to this report.