American consumers are almost too healthy


April consumer spending in food services and drinking places was up 2% from March and 19.8% from a year earlier, according to Tuesday’s report from the Commerce Department.


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Allison Zaucha for The Wall Street Journal

Retail sales are one of the first places investors turn to understand how U.S. consumers are faring, but sales data might underestimate just how intoxicating consumer demand is.

The Commerce Department reported Tuesday that retail sales, which encompass spending in stores, restaurants and online, rose a seasonally adjusted 0.9% in April from the previous month. That was slightly below economists’ forecast of 1%, but as it was accompanied by a sharp upward revision to March’s retail sales figures – the Commerce Department now says they rose by 1.4% YoY versus 0.5% – that counted as a strong report.

It counted as strong even against the backdrop of what’s happening with inflation, with last month’s sales rising faster than the 0.3% increase in overall consumer prices in April compared to March than the Department of Labor reported last week. Additionally, retailers primarily sell goods, with sales at restaurants, bars and other food and drink venues being the only major services category included in Tuesday’s report. And property prices, while up a lot from a year earlier, actually fell slightly in April compared to March.

The commodity-centric nature of the retail sales report also means investors should be careful in their interpretation. Since the start of the pandemic, American households have devoted much more of their spending to tangible things than before, a consequence of both the increase in demand for goods caused by the Covid-19 crisis and the much higher inflation of goods compared to services. In the first quarter, spending on goods accounted for about 35% of household spending, compared to 31% in the fourth quarter of 2019. To bring spending on goods and services back to its previous balance, sales of goods should fall by about 11% and service sales are expected to increase by approximately 6%.

Of course, no one knows what the eventual balance between spending on goods and services will be, but it seems likely that the share of services will increase. People are resuming activities they curtailed during the pandemic, such as travel, while demand for items such as furniture could be relatively satisfied. In addition, rising prices of goods could make services more attractive.

The steady increase in food services and drinking places spending shown in Tuesday’s report — it was up 2% from March and 19.8% from a year earlier — could be instructive. about the direction of service spending. Excluding restaurants and bars, sales rose 6.7% year-on-year.

Tuesday’s report was taken on Wall Street as a sign that despite concerns about inflation and the Federal Reserve’s efforts to slow the economy, consumers are alive and kicking. They could propel the economy far beyond Fed targets.

Airlines, gas stations and retailers use complex algorithms to adjust their prices based on costs, demand and competition. WSJ’s Charity Scott explains what dynamic pricing is and why companies are using it more often. Illustration: Adele Morgan

Write to Justin Lahart at justin.lahart@wsj.com

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Appeared in the print edition of May 18, 2022 under the title “Consumer spending is almost too healthy”.


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