Dive Brief:
- Retail sales growth slowed to 0.5% last month from 1.6% in March as a war-induced surge in price pressures exceeded wage gains and eroded affordability across a range of goods.
- Sales increased 4.9% compared with April 2025, the Census Bureau said Thursday. Retail sales will likely flag in coming months as consumers spend what remains of their income tax refunds, Pantheon Macroeconomics Senior U.S. Economist Oliver Allen said.
- “The flow of refunds will taper dramatically in May, leaving consumers far more exposed to the surge in fuel costs” from the war, Allen said in a note. “With confidence depressed, the labor market weak and the personal saving rate already very low, we expect that to prompt a meaningful pull back in discretionary spending in the second half of Q2.”
Dive Insight:
Consumer sentiment has slumped to a record low this year as households struggle to cope with a rebound of inflation.
The Consumer Price Index on an annual basis surged last month to a three-year high of 3.8%, the Bureau of Labor Statistics said Tuesday.
The cost of energy jumped 17.9% during the past year, spurred by a 28.4% increase in the price of gasoline and 54.3% gain in the price of fuel oil. Food prices rose at a 3.2% annual rate. So-called core CPI, which excludes energy and food prices, gained 2.8%.
Meanwhile, wages on an annual basis increased just 3.6% in April, lagging inflation for the first time in three years, the BLS said Friday.
“In my travels around New England, concerns about high prices are ubiquitous, especially for lower- and middle-income households,” Susan Collins, president of the Federal Reserve Bank of Boston, said Wednesday in a speech.
Consumers expect inflation to eventually cool, Collins said, while cautioning that “we cannot take such anchoring for granted.
“This is particularly true in the current environment, with price increases already affecting fuel and perhaps soon food — items that are top-of-mind for consumers.”
As affordability of goods and services fades, households are cutting spending on meats, poultry and other groceries, the Richmond Fed said Tuesday, citing data from March.
Consumer outlays for food services, health, accommodations and foreign travel also fell in March, the first full month of the Iran war, according to the Richmond Fed.
Consumers may be sustaining their spending by reducing savings, the Richmond Fed said, noting that the personal savings rate fell to 3.6% in March, the lowest level since October 2022.
Consumer spending in March on categories including recreation and motor vehicles exceeded forecasts, the Richmond Fed said Tuesday.
“These saving and spending choices suggest that consumers’ spending appetites may have been disrupted, but not destroyed, by high energy prices,” the Richmond Fed said.
