U.S. Consumers Are Almost Too Healthy

Retail sales are one of the first places investors find out how much U.S. consumers are loving, but sales data may not give a clear understanding of consumer demand.

The Commerce Department on Tuesday reported that retail sales, which includes spending in stores, restaurants and online, rose a seasonally adjusted 0.9 percent in April from a month earlier. The figure was slightly below economists’ 1% forecast, but as it came with a sharp bullish revision to March retail sales figures – the Commerce Department now says it rose 1 percent. .4% from a month earlier instead of 0.5% – it counts as a solid report.

It was seen as solid even amid ongoing inflation, with sales last month growing faster than the 0.3% increase in overall consumer prices in April compared with March that the Labor Department reported. reported last week. Additionally, retailers are primarily in the business of selling goods, with sales at restaurants, bars and other dining venues being the only major service category included in Tuesday’s report. And commodity prices, although up a lot from a year earlier, actually fell a bit in April compared with March.

The commodity-centric nature of the retail sales report also means that investors need to be cautious in how they interpret it. Since the pandemic began, US households have spent more on tangible things than in the past — a result of both the increased demand for goods caused by the Covid-19 crisis and inflation is much higher for goods than for services. In the first quarter, spending on goods accounted for about 35% of household spending, up from 31% in Q4 2019. To bring spending on goods and services back to the previous balance, sales would need to be reduced by about 11%. and services revenue would need to grow by about 6%.

Of course, no one knows what the final balance of spending on goods versus services will be, but it seems likely that the share of services will grow even higher. People are returning to engage in activities they cut back during the pandemic, such as travel, while demand for items like furniture can be relatively low. Furthermore, higher commodity prices can make services more attractive.

The steady rise in spending at food and beverage services shown in Tuesday’s report – up 2% from March and up 19.8% from a year earlier – could be a sign that service spending is heading. Excluding restaurants and bars, sales were up 6.7% for the year.

Tuesday’s report came on Wall Street as a sign that despite worries about inflation and the Federal Reserve’s efforts to slow the economy, consumers are alive and well. They may be driving the economy past the Fed’s targets.

Airlines, gas stations, and retailers use complex algorithms to adjust their prices in response to cost, demand, and competition. The WSJ’s charity Scott explains what dynamic pricing is and why companies are using it more often. Illustrated by: Adele Morgan

Write letter for Justin Lahart at justin.lahart@wsj.com

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https://www.wsj.com/articles/u-s-consumers-are-almost-too-healthy-11652803246?mod=rss_markets_main U.S. Consumers Are Almost Too Healthy

Edmund DeMarche

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