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Retail Sales Rose Despite Inflation with Help from Credit Cards

In: Finance, Forex

The value of overall retail purchases increased 0.9%, after an upwardly revised 1.4% gain in March, Commerce Department figures showed Tuesday. Excluding vehicles and gas stations, sales rose 1% last month. The figures aren’t adjusted for inflation.

The S&P 500 opened higher, while Treasuries sold off after the report and the dollar remained lower.

While the increase will look less impressive after taking price movements into account, today’s data still suggests that the squeeze on household incomes from inflationary pressures isn’t yet having a material impact on discretionary spending.

The data suggest that Americans are still spending on merchandise at a rapid clip — potentially fueled by credit-card borrowingeven as prices rise at the fastest pace in decades. That said, economists expect consumer spending to shift away from goods and toward services like travel and entertainment as pandemic-related health concerns wane and demand for summer activities picks up.

The figures add to signs of overheated demand that’s likely to keep the Federal Reserve on track to raise interest rates by a half percentage point at each of its next two meetings, following a similar increase earlier this month. Some economists fear the Fed will crush demand while trying to tame inflation, which could tip the US into a recession.

Consumer spending is by far the biggest contributor to the US economy, and it may fall in the coming months due to the end of federal stimulus, rising interest rates and declining savings.

While the increases could reflect strong demand for merchandise, the gains could also be a result of higher consumer prices, since the retail sales data aren’t adjusted for inflation. Real spending data will be released next week.

American consumers kept spending at a robust clip in April, relying heavily on credit cards amid surging prices, plunging sentiment and falling real incomes. The latest data suggest consumer demand remains solid despite rising interest rates and inflation, and will keep hopes alive for a soft landing in GDP growth this year.

To keep pace with price increases, consumers are loading up on their credit cards, according to Federal Reserve data. Borrowing in March soared by the most on record, and a separate report from the New York Fed showed Americans opened a record 537 million credit card accounts in the first quarter.

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