MNI REALITY CHECK: High Prices No Drag on US Retail Spending

U.S. April retail sales growth likely slowed over March as reopenings and vaccinations tapered, industry experts told MNI, although more fiscal relief and tax refunds mean higher prices for goods won't be a drag on spending.

"I'm expecting that we'll see another solid month" of spending, said Jack Kleinhenz, chief economist at the National Retail Federation, noting that the ability to spend improved through the month, with stimulus money in "full force" and tax refunds on the way, however delayed.

April spending intentions improved over March, Kleinhenz said, citing data from the NRF, with 46% of consumers surveyed by the trade group saying they felt comfortable shopping in stores because of widespread vaccine availability. Another 40% said they felt comfortable going to bars and restaurants and 35% said they're willing to travel and go on vacation, he said.

Kleinhenz cautioned against using disappointing job growth last month as a bellwether of retail spending, with record-high savings and enhanced unemployment benefits strengthening the spending power of even the unemployed. Slowing job growth is likely only temporary, he added, as more businesses reopen and vaccines are administered.

HIGHER PRICES NOT A DETERRENT

Large price increases for things like used vehicles, gasoline, and building materials in April should translate into higher sales in official statistics, Kleinhenz said, but noted that prices should dip in coming months.

"I'm more in the transitory camp on inflation than permanent change," he said.

U.S. CPI rose 0.8% m/m in April, the Bureau of Labor Statistics said Wednesday, with used car and truck prices accounting for more than a third of that increase.

But higher prices aren't having a "discernible impact" on sales because of pent up demand, said Gary Raines, chief economist at the Footwear Distributors and Retailers of America, a Washington-based trade association representing more than 90% of the U.S. footwear industry.

Consumers are also "flushed with cash" from federal stimulus payments, he said, and are more likely to pay full price for things like footwear and apparel rather than holding out for sales or discounts.

"That's a big part of the reason why we saw such an impressive year-over-year increase in retail footwear prices in the last month," he said, though noted that global supply chain disruptions have also driven prices higher.

Still, Raines said sales in April won't be "quite as fantastic as March," and FDRA member stores in April and early May reported "lukewarm" numbers compared to 2019.

AUTOS

Meanwhile, new vehicle sales surged in April, hitting a seasonally adjusted annual rate of 18.5 million, Michelle Krebs, an analyst at online vehicle retailer Autotrader, told MNI. That's an increase of 113% over last year's 8.7 million and the highest monthly SAAR since 2005, according to data from Cox Automotive, which owns Autotrader.

"We are seeing a tremendous amount of activity in new vehicle sales because people have extra money in their pockets from not spending" through pandemic shutdowns, she said. Tax refunds and stimulus checks are also driving car-buying higher, and interest rates and loans are widely available to even the "less creditworthy," she added. "In that sense, it's a good time to buy a car."

But inventories are still extremely low, in part because of a global semiconductor shortage, and high demand is pushing prices up beyond the reach of many Americans. The market is also struggling to increase it's used vehicle inventory, as normal feeder channels, like older rental company cars and repossessions, are still closed off because of the pandemic.

Headline retail sales are expected to increase 1.1%% after increasing 9.7% in March, according to Bloomberg. Excluding vehicle sales, retail sales should rise 0.8% after a much stronger 8.4% gain in March. The control group is expected to see a 0.4% decline following a 6.9% increase in March.