Strong U.S. retail sales and manufacturing output boost economic outlook

  • Retail sales rise 0.9% in April
  • Retail sales gain in March jumped from 0.5% to 1.4%
  • Core Retail Sales Up 1.0%; March revised to show 1.1% gain
  • Manufacturing output increases by 0.8% in April

WASHINGTON, May 17 (Reuters) – U.S. retail sales rose sharply in April as consumers bought more motor vehicles amid improved supply and higher restaurant spending , which provided a powerful boost to the economy at the start of the second quarter.

The surge in retail sales reported by the Commerce Department on Tuesday suggests demand is holding up despite headwinds from high inflation, gloomy consumers and rising interest rates.

It allayed fears of an impending recession. The underlying strength of the economy was underscored by other data showing that production at factories accelerated in April.

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Rising wages fueled by a rush for scarce workers and massive savings accumulated during the COVID-19 pandemic are underpinning spending. Consumers are also increasing their use of credit cards. But strong spending means the Federal Reserve will have to stick to its plan to cool demand.

“Strong retail sales should limit concerns about downside risks to growth and keep Fed officials firmly focused on raising interest rates to deal with too high inflation,” Matthew said. Massicotte, economist at Citigroup in New York. “At some point, rising prices will dampen consumer demand and slow inflation, but for now, the strong tailwind from growth in nominal income and available consumer credit is boosting demand.”

Retail sales rose 0.9% last month. March data has been revised up to show sales rose 1.4% instead of 0.5% as previously reported. The increase in retail sales in April, which reflects both strong demand and higher prices, is in line with economists’ expectations. Sales increased by 8.2% over one year.

Retail sales are mostly made up of goods and are not adjusted for inflation, which appears to have peaked. Consumer price inflation rose 8.3% year-on-year in April.

The increase in retail sales was led by auto dealers’ revenue, which rebounded 2.2% after falling 1.6% in March. This offset a 2.7% drop in sales at gas stations. Pump prices fell after hitting record highs in April. However, they have since hit an average all-time high of $4.523 per gallon on Tuesday, according to AAA.

Excluding gasoline, retail sales rose 1.3%. Revenue from bars and restaurants, the only service category in the retail sales report, rose 2.0%. Clothing store sales rose 0.8% as many workers returned to the office. Online store sales rose 2.1%.

Sales by electronics and appliance retailers and furniture stores also rose sharply. But sales at building material, equipment and garden supply stores fell 0.1%. Sales at sporting goods, hobby, musical instrument and book stores fell 0.5%.

Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. US Treasury yields rose.

STRONG DEMAND

With a record 11.5 million job openings at the end of March, wages are rising and allowing cash-strapped consumers to take on second jobs or take extra shifts, providing some protection against inflation. Households are sitting on at least $2 trillion in excess savings, some of which is being deployed to maintain spending. Earnings for U.S. workers posted their biggest gain in more than three decades in the first quarter.

But with the Fed adopting an aggressive monetary policy, retail sales are expected to slow later this year.

The US central bank has raised its key rate by 75 basis points since March. The Fed is expected to raise this rate by half a percentage point at each of its next policy meetings in June and July.

The National Retail Federation hailed the sales growth as proof of consumer resilience, but urged the White House and US Congress to lift tariffs on Chinese goods, pass legislation to fix the supply chain and addressing immigration reform to ease the tight labor market.

The Home Depot Inc (HD.N) raised its full-year earnings and sales forecast on Tuesday, reporting an increase in comparable sales in the first quarter, while Walmart (WMT.N) reported a sharp drop in quarterly profits. and cut its annual profit outlook. Read more

Excluding automobiles, gasoline, building materials and food services, retail sales rose 1.0% in April. Data for March has also been revised up to show that these so-called core retail sales rose 1.1% instead of falling 0.1% as previously reported.

Core retail sales correspond most closely to the consumer spending component of gross domestic product. Solid growth in core retail sales over the past month suggests that consumer spending got off to a strong start in the second quarter.

Basic retail sales and GDP

Strong consumer spending and robust business investment in equipment helped support domestic demand in the first quarter, even as GDP contracted at an annualized rate of 1.4% due to a record trade deficit and a slight moderation in the pace of inventory accumulation compared to the October-December period.

The Atlanta Fed raised its forecast for second-quarter GDP growth to 2.5% from 1.8%.

A separate Fed report on Tuesday showed manufacturing output rose 0.8% last month, matching March’s rise and beating economists’ expectations of a 0.4% gain. Production at auto factories rose 3.9% last month after accelerating 8.3% in March.

industrial output

As a result, manufacturing capacity utilization, a measure of the full utilization of resources by businesses, rose 0.6 percentage points to 79.2% in April. This is the highest level since April 2007 and capacity utilization rose 1.1 percentage points above its long-term average. Read more

“The rising capacity utilization rate provides further evidence that supply chain issues are easing, higher production will help slow inflation,” said Gus Faucher, chief economist at PNC Financial. in Pittsburgh.

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Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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