Consumers are not OK. Why April retail sales are misleading.


Walmart’s sales rose in the first quarter from a year ago, but the flat number of transactions suggests inflation was behind the gain. Here, a Walmart in San Leandro, California last year.

David Paul Morris/Bloomberg

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The latest retail sales report overturned recession fears. It shouldn’t.

When data showed U.S. retailers’ April sales were up 0.9% from the previous month and 8.2% from a year earlier, Wall Street celebrated. Economists and strategists have concluded that even though consumers are miserable, they are still spending — and enough to prevent economic contraction as the Federal Reserve raises interest rates and shrinks its balance sheet to fight high inflation. But this stance, which fits the mainstream narrative that the central bank will achieve a soft landing, is too superficial.

First, inflation-adjusted numbers are called “real” for a reason. When you adjust the reported nominal sales figures using the consumer price index, they were negative in April and for the second consecutive month. The base effect is a factor, given the big jump a year ago that makes comparison difficult. “But still,” says Lyn Alden, founder of Lyn Alden Investment Strategy, “a lot of those gains are just price spikes, not volumes.”

The problem goes beyond retail sales. Economists at

Goldman Sachs

say a “nominal bias”, or the effect of prices on survey index levels caused by respondents thinking in nominal rather than real terms, means that the pace of economic growth is around 2 points percentage lower than the 3.5% rate that their unadjusted activity index implies.

Retailer revenue reports reflect the idea that consumers are paying more and not buying more. To

Home deposit

(symbol: HD), sales rose 3.8% in the first quarter as higher prices offset an 8% decline in transactions. To


(WMT), the country’s largest retailer, transactions were flat compared to a year ago, but higher prices pushed the average receipt up 3%. General merchandise sales fell because food inflation diverted more dollars from other items. As David Rosenberg, chief economist at Rosenberg Research, puts it, “Inflation masks ‘real’ data which is not as favorable as some think.”

Second, consider the oft-quoted statistic that underlies soft landing predictions. Consumers are sitting on billions of dollars accumulated during the pandemic, according to many economists. But what they don’t say is that inflation erodes savings as inflation-adjusted incomes fall; the notion also touches on the pain of low-income families, who have a higher propensity to spend, as the cost of basic necessities soar. “There is little to no ‘excess savings’ left in the economy, and the latest results from the nation’s largest retailer are proof of that,” Rosenberg says.

This is not to mention the result of the inventory. The pace of inventory accumulation has exceeded sales in three of the past four months — good news on the supply chain front, but one that could usher in a cycle of destocking and production cuts, Rosenberg says. Indeed, data from SpaceKnow, which monitors economic activity from space, shows that the movement of goods from warehouses to malls and customers’ homes has slowed. Anu Murgai, the company’s vice president of commerce solutions, says Walmart-specific logistics data initially slowed, with overall business catching up (or shrinking) now. Two takeaways: retail sales volumes are falling and inventories are rising, with the latter potentially weighing on gross domestic product.

Third, consumer credit data undermines the jubilant consumer narrative. Consumer credit rose 39% in March from February, when it jumped from the previous month, and more than tripled from a year earlier, even as the cost of credit was increasing. The good news, according to economists at Goldman Sachs, is that revolving credit balances – credit cards – remain below normal and household indebtedness does not yet appear to be a problem. The bad news: If revolving consumer credit continues to grow at its current pace, balances would completely normalize and limit spending in the third quarter.

There is an upside to a consumer who is not as healthy as many believe. To some extent, higher prices could start to heal higher prices, increasing the odds that the Fed won’t tighten as much as feared. Whether inflation cools enough to avoid stagflation and whether growth persists to prevent recession is another matter.

Write to Lisa Beilfuss at


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