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Retail sales excluding gasoline and motor vehicles rose at a good clip for the fourth month in a row, picking up 0.5% in April. Electronics and appliances rose a strong 1.4%, as did sporting goods. Grocery stores did well for the second straight month, while general merchandise, clothing and furniture saw some pullback after a strong March. Of particular note is the four consecutive months of strong e-commerce gains of better than 1% each. E-commerce now accounts for 28% of retail sales excluding motor vehicles and gasoline. Motor vehicle sales rose a healthy 0.5%.
Restaurant and food-service sales rose a strong 0.6%, bouncing back from a slow March. Every time it seems like this sector might be slowing down, it speeds up again. [8Spending on services excluding dining grew a moderate 0.4% in March, after rising 0.3% in February. (March is the latest month for which services spending data other than dining are available. April data will be available on May 28.)
Consumers have shown resilience in the face of rising gasoline prices that are now $1.50 a gallon higher than before the Iran war. Going forward, inflation will skew nominal sales upward in certain categories, but inflation-adjusted consumer spending may soften a little. We expect that high gasoline prices will eventually cause consumer spending to slow down a bit, simply because savings rates are low and households will need to rebuild their financial reserves. Gasoline prices and high airfares due to rising fuel costs will also be a drag on travel and recreation spending as the weather warms. Wage growth is expected to slow somewhat. The hiring slowdown is creating job anxiety, even among people who are employed. Households tend to cut spending and add to their savings when the possibility of losing a job looms. If the unemployment rate or initial claims for unemployment rise, that fear will intensify. Look for the personal saving rate to rise to 5.4% by the end of the year, from 3.6% in March. That translates to less consumer spending.
Larger tax refunds this year have compensated for the higher gasoline costs, at least temporarily. Refunds grew this year by 18%, with the average refund up by $326, on average, according to Internal Revenue Service data through early May. It is likely that this will be especially noticeable in the Northeast and Pacific Coast states, given the higher cap on state and local tax deductions on federal returns. Residents with hefty state and local tax bills will tend to see sizable refunds if they itemize on their tax returns.
