Shoppers look at a television at a Costco warehouse in Sheridan, Colo., on May 1.David Zalubowski/The Associated Press
U.S. retail sales growth slowed in April as the boost from households front-loading motor vehicle purchases ahead of tariffs faded and consumers pulled back on spending elsewhere against the backdrop of an uncertain economic outlook.
The apprehension over the economy’s prospects, sparked by President Donald Trump’s on-again, off-again tariffs policy, was underscored by retail giant Walmart, which on Thursday joined the list of companies from airlines to auto manufacturers that have either withdrawn or refrained from giving financial guidance.
Wholesale prices for services like airline tickets and hotel rooms fell last month, other data showed, also flagging softening demand, which does not bode well for an anticipated rebound in growth this quarter after the economy contracted in the January-March period for the first time in three years.
“We are now witnessing the first-order effects of tariffs on the economy through reduced spending,” said Tuan Nguyen, a U.S. economist at RSM US. “While a recession is no longer our base case over the next 12 months due to the recent reduction in tariffs, the likelihood has increased that the U.S. economy will experience several quarters of sluggish growth.”
Retail sales edged up 0.1 per cent last month after an upwardly revised 1.7 per cent surge in March, the Commerce Department’s Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, would be unchanged after a previously reported 1.5 per cent jump in March. Estimates ranged from a 0.6 per cent decline to a 0.4 per cent gain.
Retail sales have see-sawed this year amid Trump’s announcements of import duties. Though Washington and Beijing struck a 90-day truce in their trade war last weekend, slashing tariffs on imports, uncertainty remained over what happens thereafter.
Sales at auto dealerships dipped 0.1 per cent after accelerating by 5.5 per cent in March. Receipts at sporting goods, hobby and musical instrument stores slumped 2.5 per cent, while receipts at miscellaneous store retailers fell 2.1 per cent.
Online retail store sales rose 0.2 per cent while receipts at food services and drinking places, the only services component in the report, increased 1.2 per cent after rebounding by 3.0 per cent in March. Economists view dining out as a key indicator of household finances. An analysis of Bank of America credit card data suggested most households remained financially sound, thanks to a resilient labour market characterized by low layoffs.
Bank of America Institute, however, noted “we see some increase in the share of households making only the minimum payment on their credit cards, suggesting building pressures for some households.”
Stocks on Wall Street were trading lower. The dollar fell against a basket of currencies. U.S. Treasury yields declined.
Retail sales excluding automobiles, gasoline, building materials and food services fell 0.2 per cent in April after an upwardly revised 0.5 per cent gain in March.
These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Economists had forecast core retail sales would climb 0.3 per cent after a previously reported 0.4 per cent advance in March.
Consumer spending ended the first quarter on a strong note, putting consumption on a higher growth trajectory heading into the second quarter.
Economists expect a modest rebound after the economy contracted at a 0.3 per cent rate pace last quarter amid a flood of imports, triggered by businesses trying to beat tariffs.
A separate report from the Labor Department showed the Producer Price Index for final demand dropped 0.5 per cent in April as the cost of services declined by the most since 2009, pulled down by ebbing demand for air travel and hotel accommodation.
The PPI was unchanged in March. Economists had forecast the PPI would rise 0.2 per cent. In the 12 months through April, the PPI increased 2.4 per cent after climbing 3.4 per cent in March.
In addition to his protectionist trade policy, Trump has cracked down on immigration and repeatedly expressed his desire to make Canada the 51st U.S. state and acquire Greenland. Those actions have been followed by a sharp drop in tourism, with lower airline ticket sales and hotel and motel bookings.
Wholesale services prices dropped 0.7 per cent, the largest decline since the government started tracking the series in December 2009, after rising 0.4 per cent in March. Prices for hotel and motel rooms dropped 3.1 per cent after easing 0.5 per cent in March. Portfolio management fees plunged 6.9 per cent, while airline fares fell 1.5 per cent.
Portfolio management fees, hotel and motel accommodation and airline fares are among the components that go into the calculation of the core Personal Consumption Expenditures (PCE) Price Index, one of the inflation measures tracked by the Federal Reserve for its 2 per cent target. Combined with tame consumer price readings in April, economists estimated that core PCE inflation rose 0.1 per cent after being unchanged in March. Core PCE inflation was forecast to have increased 2.5 per cent on a year-over-year basis in April after rising 2.6 per cent in March.
With retailers like Walmart and automakers like Ford Motor, however, raising prices in response to tariffs, any moderation in inflation is likely to be temporary.
Fed Chair Jerome Powell warned on Thursday that “we may be entering a period of more frequent, and potentially more persistent, supply shocks – a difficult challenge for the economy and for central banks.”
Economists expected core PCE inflation to peak at around 3.6 per cent this year and that the U.S. central bank would resume cutting interest rates either in September or December.
The Fed left its benchmark overnight interest rate in the 4.24 per cent-4.50 per cent range earlier this month.
“The pendulum keeps swinging in a hawkish direction as Powell talks about supply shocks and reiterates the importance of keeping inflation expectations anchored,” said David Russell, global head of market strategy at TradeStation. “While recent data has been benign, there could be pressures building toward higher inflation.”