The Department of Commerce has reported a slight increase in retail spending in the US for April, signaling that consumer activity continues to be a crucial component of the nation’s economic expansion, in spite of looming recession fears.
A 0.4% rise in retail sales compared to the prior month, although not meeting the projected 0.8% increase forecasted by economists, still showcases a level of steadiness in consumer habits following a dip in the preceding two months.
The boost in April was chiefly attributed to expenditure in automobile dealerships, restaurants, online retail, and a variety of “miscellaneous” stores, such as flower shops and pet supply businesses. On the other hand, purchases of sporting goods, furniture, electronics, and at gas stations saw a downturn during the same period.
Natalie Kotlyar, National Practice Leader of BDO’s Retail and Consumer Products industry, commented on the April retail sales data, saying, “These figures demonstrate the durability of our economy. Customers are focusing on experiences and travel, as seen in the increased frequency of dining out.”
Significantly, the US job market remains solid, a major contributing factor to consumer spending. Based on figures from the Bureau of Labor Statistics, the economy gained a substantial 253,000 jobs in April, with average hourly earnings rising by 16 cents, or 0.5%, to $33.36. The unemployment rate in April dropped to a 53-year low, exhibiting the robustness of the job market.
“Ultimately, job creation and wage growth, which fuel personal income growth, are the primary drivers of consumer spending,” said Kathy Bostjancic, Chief Economist at Nationwide Mutual.
However, despite encouraging statistics, Bostjancic and other economists predict a potential economic slowdown towards the end of the year. They attribute this to the projected weakening of the job market and a subsequent decrease in consumer spending. Bostjancic forecasts the unemployment rate could gradually climb to a high of 5.5% by mid-2024.
Credit conditions are also growing more restrictive, a trend amplified by the collapse of Silicon Valley Bank and Signature Bank in March. A recent survey of senior loan officers examining lending activity in Q1 indicates that the borrowing landscape could become increasingly difficult in the months ahead. This tightening of credit access could curb consumer spending and hinder businesses’ capacity to grow or initiate new ventures, a common indicator of an impending economic downturn.
“This follows the typical recession pattern, and we believe we’re in the initial phases of it. If a company lays off an employee, that person cuts back on spending, which affects another company’s revenue, leading to more layoffs, and thus creating a cascading effect,” said Michael Reynolds, Vice President of Investment Strategy at Glenmede.
Despite the increase in consumer spending, business investment has been waning. The most recent GDP report from the Commerce Department revealed businesses cutting back on equipment expenditure in Q1, and orders for nondefense capital goods excluding aircraft have reduced in four out of the last five months.
Earlier this month, the Federal Reserve, in an attempt to temper the economy and moderate soaring inflation, voted to increase its benchmark lending rate by a quarter point to 5-5.25%. The Consumer Price Index climbed 4.9% for the 12 months ended in April, a marginally slower pace than the 5% year-on-year increase in March. Fed officials anticipate further easing of inflation throughout the rest of the year as consumers pull back on their spending.
Despite potential economic hurdles, robust consumer spending on goods persisted in Q1, with expenditure on services and experiences also remaining strong and expected to continue into the summer.
In summary, while potential challenges lie ahead for the US economy in the form of a constricting credit landscape and potential labor market slowdown, the resilience of consumer spending continues to serve as a crucial pillar of support. Whether this resilience can sustain the economy in the face of a possible recession remains uncertain.
©world-news.biz