Retail: Consumers Aren’t Done Yet

Kiplinger's Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or for more information.

If you already subscribe to the print edition of the Letter, click here to add e-mail delivery and the digital edition at no extra cost.

A good April retail sales report, and a large upward revision to March sales, indicate that declining consumer sentiment has not affected spending yet. Sales were up even after accounting for inflation, and likely point to consumers still supporting economic growth in the second quarter. “Going out” categories, such as restaurant and clothing sales, are surging. E-commerce sales had a good month, and motor vehicle sales bounced back after a drop in March.

Furthermore, consumers are not done yet. The New York Fed's April Household Spending Survey reported that expected growth in monthly expenditures was the highest since the survey began in August 2015. The large purchases consumers are thinking of making now are primarily vacations, so spending on services is also likely to surge in the coming months. Home repairs were a close second. Also, because the computer chip shortage has limited sales of cars, appliances and electronics, expect a surge of consumer buying in those areas when the shortage eases.

Restaurant sales continued their upward trajectory, with 2% pickups in March and April. The return to more-normal patterns of dining out after the pandemic should continue to boost sales, though higher food and labor prices are forcing restaurants to raise their prices, as well. This could be a drag on their sales at some point.