US consumers ended Q1 on a cautious note but opened their wallets again in April, aside from spending on gasoline.
The headline on the report was soft but the important part was the surprise strength in the control group, which excludes autos, gas and building materials.
CIBC:
Although clothing, furniture and sporting goods sales declined, restaurant spending grew on the month, suggesting that overall, consumers, supported by the strong labor market, are still not fully pulling back on discretionary spending. This supports our call that a recession is not imminent and that the Fed will not cut rates until 2024.
The control group categories displayed a mixed performance. Growth was seen in health and personal care stores, general merchandise stores, miscellaneous stores, and online shopping, despite a decline in other categories. The dip in total retail sales can be attributed to falling gasoline sales, despite higher prices, partly due to a Florida gas shortage in April. However, auto sales rebounded with a 0.4% increase, with expectations of continued growth as supply chain issues resolve.
Furthermore, while grocery store sales declined, restaurant sales grew, likely due to higher inflation rates in restaurants. The robust labor market suggests a solid contribution to Q2 GDP , but with the decline of pandemic-accumulated savings, a slowdown in consumption is expected. However, stronger than expected industrial production figures should help alleviate recession fears.
CIBC offers a reminder that the old saying remains true -- never underestimate the spending power of the US consumer:
Today's retail sales release suggests that consumers are not pulling back on spending as much as was anticipated. Combined with stronger than expected industrial production numbers, this should assuage fears that a recession is imminent and supports our call that the Fed will not cut interest rates before 2024.
USD/JPY continues to hit new session highs and is now up 40 pips to 136.53.
