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Retail and food service sales excluding gasoline edged up 0.1% in April, following a 2.0% surge in March. The lack of a pullback in April sales indicates that consumers are still buying heavily in anticipation of price increases driven by new tariffs later. Motor vehicle sales stayed close to their strong March level. Sales of large-ticket items such as furniture, appliances, electronics and building materials continued to advance. The big surge in e-commerce sales happened in February, but online sales have continued to edge up since then. Other categories, including in-store sales, did show some regression after the March surge, but only sales at miscellaneous stores fell back all the way to February’s level or lower.
Restaurant sales rose a strong 1.2% in April, after an even stronger jump of 3.0% in March. Since meals out are usually discretionary purchases, this strength indicates that consumers’ wallets are not closed tight yet, despite poor consumer sentiment readings. Spending on other services excluding dining rose a moderate 0.5% in March (the latest month for which these data are available), which has been the average gain over the previous 12 months. Spending on services has been pretty consistent over this time.
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Consumer spending growth will likely slow this year, for multiple reasons: Income growth should flatten, as hiring is expected to decline, while tariffs plus layoffs of federal workers and contract terminations will create ripple effects and economic uncertainty for consumers and businesses alike. Consumer sentiment for April showed yet another sharp drop, for the third month in a row. Sentiment and actual consumer spending have diverged so far this year, as shoppers stock up ahead of tariff-driven price increases, but eventually the sentiment surveys and actual spending data should come back into alignment.
Finally, even if the unemployment rate does not rise much, any fears of job losses will likely boost the household savings rate to 6%, from below 4% late last year. More saving means less spending on current consumption: a prudent move for individual consumers during times of uncertainty, but a headwind for the overall economy, which depends on robust spending.
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