US Retail Sales Increase Moderately; Core Sales Strong

• U.S. retail sales increased less than expected in April, rising by 0.4% with some Economists forecasting sales rebounding by 0.8%. The underlying trend was solid, suggesting that consumer spending got off to a strong start in the second quarter, defying expectations of a recession this year.
• The smaller-than-expected rebound in retail sales last month reported by the Commerce Department on Tuesday likely reflected a moderate rise in receipts at auto dealerships, which some economists have said was because of lower prices. Receipts at auto dealers rose 0.4% after back-to-back decreases. "That adds to the signs that vehicle prices are now falling, weighing on the nominal value of sales," said Andrew Hunter, deputy chief Economist at Capital Economics.
• Nevertheless, higher borrowing costs and prices are taking a toll on consumers with sales at building material and garden equipment supplies dealers marginally increasing by 0.5% and online retail sales surging by 1.2%, likely due to price-conscious consumers continuing to seek discounts and deals.
• The rise in retail sales added to strong job growth in April suggesting that the economy was experiencing a spring revival after activity slowed in February and March. Spending is being underpinned by strong wage gains due to a tight labour market.
• "Outright declines in spending will be needed in the remaining two months of the second quarter to spur a contraction in real personal consumption," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. "This risks another delay in the long-awaited recession, likely due to ongoing revenge spending, excess savings, and sturdy income growth."

(Source: Reuters)