CNN
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In a sign that consumer demand may be fraying around the edges, spending at US retailers slowed sharply in April to 0.1% after a surge of 1.7% in March as shoppers rushed to beat President Donald Trump’s stiff tariffs.
The April data was worse than the 0.2% monthly rise economists polled by FactSet predicted.
Among the biggest monthly declines was motor vehicle and part sales, which declined to -0.1% in April from 5.5% in March.
Consumer spending is the backbone of the economy, accounting for two-thirds of gross domestic product. The steep drop in retail sales could lead to another quarter of disappointing GDP after the contraction seen last quarter.
Simply put, EY economists said in a Thursday morning note, the “pre-tariff shopping spree is over.”
The Trump administration’s haphazard tariff blitz in recent months has prompted consumer sentiment to deteriorate, according to various surveys. Now, Wall Street and the Federal Reserve are watching for signs of consumers pulling back in the face of high uncertainty.
Thursday’s report shows that consumer spending has clearly downshifted from the brisk pace of late last year, and that Americans’ buying sprints to get ahead of tariffs may already be over.
“Whatever strength we saw in the economy in the first quarter, I think it’s a bit of a mirage,” said Chris Rupkey, chief economist at FwdBonds. “Sales were brought forward to try and avoid higher prices that are surely just around the corner from this trade war with the world.”
The biggest bright spot of the report was spending at bars and restaurants, which increased by 1.2% from March. Spending at grocery stores was unchanged from March. That’s potentially a positive sign for the US economy, Jefferies economists said in a note on Thursday.
“Spending less at restaurants and more on groceries would be a logical expression of weaker consumer confidence and greater concern over employment prospects. Currently, we are seeing the opposite, in contrast to the confidence data.”
At the same time, spending on health and personal care as well as apparel and sporting goods all declined in April.
Despite the steep drop in spending across the board from March, Morgan Stanley economists said in a note to clients on Thursday, “This report does not change our view that the consumer is at a solid starting point, but we expect a slowdown.”
At the same time, they noted that the weakness in spending came sooner than they anticipated and they “continue to expect a significant slowdown in consumption in the back half of the year as price increases from tariffs weigh on purchasing power.”
