US: No surprises in retail sales

Retail sales, in terms of the effect of the total demand in the economy on inflation, is one of the data that we can attach importance to this week. Retail sales excluding cars and gas may be under pressure in real terms as higher prices curb discretionary spending. On a nominal basis, on the other hand, it is observed that the increase rates benefited from the high inflation effect.

If we look at the majority of the data; While headline retail sales increased by 0.9% compared to the previous month, 1% in core (excluding automobiles, gasoline, construction materials and food services) sales, a measure that gives a clearer view of the trend, and 1% in the control group, which directly affects the growth account. increases are observed. As such, the data do not generally present a positive picture in terms of the inflation effect and above expectations.

If we look at the sub-items; Pump prices fell in April, which seems to have supported a sharp decline in gasoline sales. Retail sales of motor fuel fell 2.7% in April, roughly at the same level as before Covid. Despite the fact that food prices increased by almost double digits compared to a year ago, food expenditures decreased by 0.2% in April. April data indicate that automotive sales increased by 2.2%. This appears to be offset by a solid increase in auto sales, as gas prices lower overall sales. A 2% increase is observed in restaurants, one of the Covid-sensitive services, as consumer demand continues to move away from goods, supporting the solid momentum of growth. Expenditures on services will continue to increase into the summer, and this will be affected by items such as flight tickets, especially in the context of travel demand and the increased demand by Americans during holidays such as Easter. There is an increase of 1.1% in shopping malls, which we have been watching for a while as indicators of pandemic rotation, and 2.1% in online sales. Among some other items, construction and sporting goods decreased by 0.1% and 0.5%, respectively.

After two years of excess during the pandemic, demand for goods has softened and inflation has shifted its effect mainly to services. Supply chain bottlenecks worsened due to China’s Covid lockdown and Russia’s war against Ukraine, while low demand for goods prevented inflation from climbing even higher. Demand for consumer goods may continue to be in a downward momentum due to the constraining effect of high prices on expenditures. This bodes well for the continued price moderation in various consumer goods categories and even the chances of deflation under normal circumstances. Post-pandemic moderation in consumer demand for goods such as furniture, appliances, and entertainment products has heavily driven the flow into the service sector. Meanwhile, with real wages not rising, consumers at the lower end of the income spectrum turn to credit cards and savings to pay at the supermarket and gas station, while inflation restrains spending on more discretionary goods.

In terms of the Fed; The motivation to cut demand will continue due to the momentum weighing the situation towards general inflation fueled by oil prices and solid services inflation. This shows that the Fed is not in a position to step back from the tightening cycle. In the US, consumers still spend and contribute to demand inflation with loans and savings. In curbing demand-driven inflation, the Fed will maintain 50 bps increases.

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