While residential and business fixed investment have been the first casualties of the most aggressive monetary policy tightening in a generation, some signs of wary consumers have emerged that threaten to derail the economic resilience seen post the darkest days of the pandemic. Battered by durable inflation and higher interest rates, consumers have grown increasingly skittish regarding spending on bigger ticket, discretionary goods in favor of lower priced services. While headline retail sales continue to run ahead of pre-pandemic levels, this data is not adjusted for inflation and the picture changes when reducing these nominal sales receipts for higher prices, which revealed that sales volumes were flat in real (inflation-adjusted) terms during April. Notwithstanding last month’s headline advance (+.4%), the first since January, the last ninety days have revealed that total retail sales are down 0.3%. Perhaps more telling, control-group sales, which exclude autos, building-material stores and gasoline stations and feed directly into GDP calculations, were up a mere +.1% over the same time period before adjusting lower for inflation.
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