May 16, 2023

Retail sales rose 0.4% in April after having declined 0.7% in March.   In the past year retail sales have climbed by 1.6%.

Motor vehicle sales rose 0.4% in April after having fallen 1.4% in March.  In the past year car sales have declined 0.5%.

Retail sales ex autos and gas, which eliminates the two most volatile components and is a better gauge of the trend pace of sales, rose 0.6% in April after having declined 0.5% in March  The consumers’ pace of spending is slowing gradually.  In the past year this series has risen 4.3%. The object for the Fed is to reduce the pace of economic activity so that the unemployment rate actually rises slightly from its current level of 3.4% at least to the 4.0% mark (which is widely regarded as the full employment threshold) but preferably somewhat higher to about 4.5%.  Thus far it is not doing that.

Restaurant sales climed 0.6% in April after having risen 0.3% in March.   In the past year restaurant sales have risen 9.4%.  Consumers still seem perfectly willing to go out to a restaurant.

Sales at nonstore retailers rose 1.2% in April after having climbed 0.4% in March.  In the past year nonstore sales have risen 8.0%.  .

The problem is that inflation has been rising as quickly as sales and, as a result, real retail sales arer not growing in real term.  Our income has been rising and we keep spending, but the amount of goods and services we are able to purchase with our fatter paycheck is somewhat less than it was a year ago.  In April real sales rose 0.1% after having declined 0.7% in March.  In the past year real retail sales have declined 3.2%.

Also, keep in mind that retail sales tells us something about consumer spending on goods — which has been essentially flat for more than a year.  In the past year real spending on goods has risen 1.0% . But the place where consumers have been spending money has been on services like traveling which has boosted air travel and hotel spending, dining out, and the like.   Real spending on services has risen 2.4%.   The economy is slowing, but thus far the slowdown has been gradual and concentrated in goods.

GDP seems on track to increase 2.0% in the second quarter.  We also anticipate GDP growth of 1.3% in 2023 as real interest rates remain slightly negative, firms keep creating a sizeable number of jobs each month, and the unemployment rate remains at a 50-year low.  With no fear of losing their job, consumers are likely to just keep spending.

Stephen Slifer


Charleston, SC