Strong U.S. retail sales suggest consumers could drive growth

By Staff, with files from The Associated Press | May 15, 2018 | Last updated on May 15, 2018
2 min read

U.S. retail sales rose at a solid pace last month, a sign that consumers may be rebounding from weak spending in the first three months of the year and driving better economic growth.

Retail sales increased 0.3% in April, the Commerce Department said Tuesday, down from a 0.8% gain in March, which was revised higher. The spending gains were spread across most retail categories, with big gains at furniture and clothing stores.

Consumer spending has rebounded in the past two months after a weak start to the year, a trend that should lift growth in the April-June quarter.

“Consumption growth is on track for a big rebound in the second quarter, which should push overall GDP growth up to more than 3%,” Michael Pearce, senior U.S. economist at Capital Economics, said.

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Spending is likely to remain healthy in the months ahead, buoyed by a strong job market that is showing early signs of lifting Americans’ incomes. The unemployment rate has fallen to a 17-year low of 3.9%. And measures of consumer confidence remain healthy, despite rising gas prices and a rocky stock market.

Clothing-store sales, fuelled by price cuts, jumped 1.4%, while sales at home and garden stores rose 0.4%. A category that includes online and catalogue sales rose 0.6%.

Consumer spending climbed 4% in the final three months of last year, the strongest increase in three years. Americans then cut back in January and February, but then spending rebounded in March.

Andrew Grantham, senior economist at CIBC Capital Markets, said in a note Tuesday that with clothing and building materials making gains, there was little sign that unseasonably cold weather had impacted sales.

“Overall, these are solid figures, particularly given the upward revision to March, which supports our forecast that consumer spending is accelerating again in Q2 after a sluggish first quarter,” he wrote. “However, the numbers are unlikely to move markets much today.”

Gas station sales rose 0.8% in April, less than some analysts forecast, largely reflecting price increases. Prices at the pump have risen steadily in the past year, driven higher mostly by oil price gains. Tuesday’s figures suggest that the price increases haven’t yet dragged down other spending, but that could change. Analysts expect gas prices to keep rising as the summer driving season gets underway.

The average price for a gallon of gas nationwide reached $2.88 Tuesday, up 17 cents from a month earlier and 54 cents from a year ago.

Retail sales are closely watched by economists because they provide an early read on consumer spending, the principal driver of the U.S. economy. Store purchases account for about one-third of U.S. consumer spending, while spending on services such as haircuts and mobile phones plans makes up the other two-thirds.

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Staff, with files from The Associated Press

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