The St Louis Federal Reserve graph of April retail sales tells us more than a thousand words that there is no imminent recession. Maybe not even next year, because consumers continue to shop, with auto sales up 2.2%, restaurants and bar sales up 2%.
Gas station sales were down -2.7% because gas prices eased during a war that is about energy supplies. Consumers are shopping as if there is no war or another COVID scare.
The gray bar in the graph is the very short March-April 2020 recession. Consumers have ignored the pundits and doom-sayers since then, and the inflation hawks that said they wouldn’t continue to boost economic growth, which now looks to be on the upswing after the Q1 plunge in Gross Domestic Product.
Sales at U.S. retailers rose a huge 0.9% in April. And the increase in sales in March, was raised to 1.4% from an original 0.7%, the government reported Tuesday.
What does the surge in auto sales and leisure activities tell us? There’s a lot of pent up demand from Americans that don’t want to stay at home any longer with jobs plentiful and salaries surging. Why should they?
Consumers also seem to be ignoring their own consumer confidence surveys, which say they are pessimistic about the future. Both the Conference Board and University of Michigan indexes have been trending downward, of late, because of the fears of rising inflation.
“Consumer sentiment declined by 9.4% from April, reversing gains realized that month,” said Richard Curtin, Director of the U. of Michigan survey. “These declines were broad based--for current economic conditions as well as consumer expectations, and visible across income, age, education, geography, and political affiliation--continuing the general downward trend in sentiment over the past year.”
The Conference Board’s was more in line with actual behaviors. ““Consumer confidence fell slightly in April, after a modest increase in March,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The Present Situation Index declined, but remains quite high, suggesting the economy continued to expand in early Q2. Expectations, while still weak, did not deteriorate further amid high prices, especially at the gas pump, and the war in Ukraine.”
But both surveys don’t seem to reflect the ebullient behavior of actual consumers. So once again, we have to take any survey with that grain or two of salt by looking at actual behavior.
We are at a classic top of the business cycle when the demand for products and services is sky high and all the factors that restrict supply are causing red hot inflation numbers, as I said last week.
That hasn’t changed, but with summer and vacation travel looming, it doesn’t look like consumers are bothered by rising prices. That could change, of course, as the Fed begins to raise interest rates further.
So why are consumers misbehaving, ignoring their own sentiment surveys? The most obvious answer is we are at full employment and salaries are rising, as I said.
The unemployment rate remained unchanged at 3.6 percent and 428,000 more jobs were created in April, according to the US Labor Dept. so no real sign of weakening employment, one of the first signs of a recession. Industrial production and business investments are also high and show little signs of slowing.
Recessions take a long time to happen, I also said last week, so we need to read what consumers do, if we want to know more, rather than what they say.
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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