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Economic Report: Sales at U.S. retailers fall flat in April as stimulus boosts fades

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The numbers: Sales at U.S. retailers fell flat in April after a blockbuster gain in the prior month when the government sent out $1,400 stimulus checks — the third report in the past week that suggests the economy is hitting fresh headwinds.

Retail sales were unchanged last month, the government said Friday. Economists polled by Dow Jones and The Wall Street Journal had forecast an 0.8% increase.

Sales had soared more than 10% in March after the government sent out a third batch of financial aid checks to most Americans. While a slowdown in retail spending was expected in April, few on Wall Street predicted such a tepid result.

Softer retail sales growth in April follows recent reports that show the U.S. added a paltry 266,000 jobs last month while inflation rose to the highest level in 13 years.

The Federal Reserve, the steward of the nation’s economy, still believes U.S. growth will improve a great deal in the months ahead as more people get vaccinated and coronavirus cases tumble to new lows. They view the recent disappointing batch of reports as “head-fakes.”

Retail sales could be another feint, some economists say.

They note that sales are sharply higher now compared to one year ago. Americans have also amassed some $2 trillion in extra savings, they point out, and they are likely to spend quite a bit of it during the summer and fall.

What happened: Most retailers rang up fewer sales in April. Americans spent less on clothes, home furnishings and recreational goods, among other things.

Sales also fell at department stores and Internet retailers.

In a bit of a surprise, sales at gas stations also declined 1.1% even though Americans are getting back on the road to commute, visit friends or travel. Gas prices fell slightly in April after rising for months.

U.S. retail sales would have actually risen, though just barely, if not for the decline in gas receipts.

In any case, gas prices are already on the rise again and they are expected to continue to climb over the summer. Americans won’t get any relief at the fuel pump.

There were a few big bright spots.

Sales at auto dealers jumped almost 3%. Cars are flying off the lots despite high prices and a shortage of some popular models tied to sporadic availability of computer chips. Auto receipts account for about 20% of all retail sales.

Bars and restaurants, for their part, also posted a 3% gain in sales. They are able to serve more people inside as governments relax restrictions. Many Americans are going out to eat for the firs time since the pandemic.

It’s always a sign of consumer confidence when people feel comfortable buying a new car or going out to eat or drink.

What could complicate the sales outlook in the months ahead is rising inflation.

The price of many goods are climbing because of supply bottlenecks and other problems that have raised the cost of raw materials or limited how much companies can produce. They’ve passed on some of these costs to consumers.

Read: Used-car prices soar and the sticker shock may get worse

Big picture: The economic recovery has been thrown a few curveballs lately, but growth is likely to remain steady through the summer even after the end of federal stimulus.

The economy could even speed up in the fall, analysts say, when schools are expected to be open. That would allow parents to send their kids off to class and let them return to work or get a new job.

What’s less clear is how much retailers — many of which have been big winners during the pandemic — will benefit.

Americans are increasingly shifting their purchases to services that they avoided during an era of social distancing. Hotels, resorts, casinos, theaters, parks and airlines will probably be the biggest beneficiaries.

“Now, with more vaccinations and states lifting restrictions, households will be looking to dine out; travel; and go to movies, concerts, and sporting events,” said chief economist Gus Faucher of PNC Financial Services. 

See: MarketWatch visual on how an unfair pandemic has reshaped work and home

What they are saying? Retail sales cooled in April, with a flat reading, as the sugar rush from generous fiscal transfers, rapid vaccinations and warmer weather faded,” said economists Gregory Daco and Lydia Boussour of Oxford Economics.

“But don’t be fooled,” they added. “Stronger consumer spending activity lies ahead as U.S. households have the means and the motivation to spend freely.”

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.83%

and S&P 500
SPX,
+1.14%

rose in Friday trades.

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