Retail Falls Flat

Retail sales disappointed forecasters by falling flat in April after surging an upwardly revised 10.7% in March. Stimulus checks were mostly used up in March spending, but households now hold larger savings than they did pre-pandemic. Higher spending on vehicles, electronics, health and personal care was not enough to offset lower spending in other categories. We expect the recovery to be uneven, partly because spending will shift from goods to services. Compared to a year ago, retail sales increased 51.2%. Base effects come into play with April 2021 data; spending screeched to a halt in April 2020 with lockdowns.

The latest round of stimulus checks had mostly been spent by last month. Continued vaccinations and lifting restrictions brought more people out to restaurants and bars, amusement parks and sporting events. OpenTable data indicates 80% of restaurants had reopened by the end of April. Government data show spending overall at restaurants and bars rose 3% in April compared to March; we expect that to increase as more businesses reopen. Hiring has become a hurdle for businesses that require face-to-face interaction. Fear of COVID, uneven access to vaccines and childcare are just a few of the issues holding back some workers from returning.

Spending on vehicles, especially new ones, increased in April with a pickup in domestic travel. The pandemic-led shift to suburban housing means more households need cars to get around. Spending at gas stations fell 1.1% in April when air travel began to revive. Spending data for May will reflect the effects of the Colonial Pipeline ransomware attack and subsequent shutdown, which has pushed gas prices higher nationally and caused shortages in some regions.

Prices have surged for raw materials like lumber, as well as computer chips and other key parts due to significant supply constraints and related delays. Spending dropped at furniture and home stores, building materials and garden stores, and sporting goods and hobby stores for the month.

Core retail sales, which feed directly into GDP figures, fell 1.45% on the month as activity at clothing and department stores slowed in April. Online shopping declined as consumers shifted away from buying goods, especially when shipments are delayed. Many who are still working from home don’t need to upgrade their wardrobes from pajamas and sweatpants.

Bottom Line
The recovery is nonlinear. New CDC guidance saying that vaccinated people no longer need to wear masks, added to more states reopening in May, will lead to more consumer activity during the spring and summer months. Google mobility data suggests that, although April mobility was flat, May movements are accelerating. People tired of being cooped up will start spending on outdoor concerts, sporting events and air travel, all of which will help the starved leisure and hospitality and entertainment industries. Vaccinations for children and the return to in-person schooling will also help boost spending over the next few quarters.

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