Retail Gross sales April 2023:

A shopper browses shirts at a clothing store in Atlanta, Georgia, on Tuesday, February 14, 2023.

Dustin Chambers | Bloomberg | Getty Images

Consumers struggled to keep up with inflation in April as retail sales rose but fell short of expectations, the Commerce Department reported on Tuesday.

The expanded sales report showed a gain of 0.4%, below the Dow Jones estimate of 0.8%. Excluding auto-related numbers, sales rose 0.4%, in line with expectations.

Since the figures are not adjusted for inflation, the overall increase was the same as the monthly CPI increase of 0.4%. Year-on-year, sales grew just 1.6%, well below the CPI reading of 4.9%.

A 0.8% drop in gasoline sales weighed on spending figures. Sporting goods, music and bookstores saw a 3.3% decline, while furniture and home furnishings saw a 0.7% decline.

Other physical store retail led the way, up 2.4%, while online sales rose 1.2% and health and personal care retailers were up 0.9%. Food and beverage sales increased 0.6% and are up 9.4% on a 12-month basis.

“Retail sales saw a modest rebound in April, but the increase mainly reflected higher prices and a sustained turnaround is unlikely as consumer fundamentals look less supportive,” said Lydia Boussour, chief economist at EY-Parthenon.

Although the report suggested consumers are struggling, it was the first positive reading since January and followed a 0.7% decline in March. The control group, which excludes autos, gas stations, building material and utility stores, and food & beverage establishments, was also up 0.7%, ahead of the 0.4% expectation.

Overall, the report is “even stronger than our previous assumptions and suggests upside potential” in the consumption outlook, Goldman Sachs economist Ronnie Walker said in a note.

Treasury yields rose after the report as the initial reaction focused more on the positive non-auto numbers, although stocks were lower in morning trade.

Consumers still have a tough road ahead.

There are signs that interest rates will rise. In fact, Atlanta Federal Reserve Chairman Raphael Bostic told CNBC on Monday that he thinks a rate hike is more likely than the cuts that markets had been pricing in before the end of the year.

To cope with persistently high inflation, consumers have taken on more debt. Total debt rose to over $17 trillion in the first quarter, according to a New York Federal Reserve report Monday, as higher interest rates pushed up borrowing costs for mortgages and credit cards.

“As the labor market continues to cool and the strain of the Fed’s aggressive monetary tightening being felt, we believe another slowdown is on the horizon,” wrote Andrew Hunter, deputy chief US economist at Capital Economics.

In a speech Tuesday morning, Cleveland Fed President Loretta Mester pointed to the “long-term costs” of inflation and stressed that the central bank is committed to bringing inflation back to the 2% target.

Other news on Tuesday showed industrial production rose 0.5% in April, better than the 0.1% estimate, according to the Federal Reserve. Capacity utilization was just under estimate at 79.7%.

The National Association of Home Builders sentiment index also rose to 50 in May, better than the estimate of 46.

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