By Amara Omeokwe
U.S. shoppers likely increased spending at retailers in April, as the recovery continued to build strength, though at a slower pace from earlier in the spring when stimulus money arrived at most households.
Economists expect a Commerce Department report to be released Friday will show that retail sales -- a measure of purchases at stores, at restaurants and online -- increased by 0.8% in April. That would represent a marked slowdown from the 9.8% advance in March.
The March surge in retail spending came as the government distributed hundreds of billions in direct cash payments to households. That was similar to a large jump in retail sales during January, following a separate round of direct payments authorized by Congress at the end of 2020.
The stimulus checks "burned a hole through consumers' pockets in those months and contributed to big, big surges" in retail sales, said Tim Quinlan, senior economist at Wells Fargo. "The immediate sugar high from the stimulus could be wearing off."
Economists expect pent-up demand after months of government restrictions on businesses and activity, along with large stockpiles of savings for some households, will drive robust consumer spending in coming months, particularly as establishments in the services sector are allowed to more fully operate.
There are positive signs for the economy as the U.S. moves towards a full reopening. Claims for unemployment benefits have continued a downward trajectory to pandemic lows. State and local governments have further eased restrictions on businesses as coronavirus vaccines circulate and the number of virus cases recedes. The Centers for Disease Control and Prevention on Thursday said fully vaccinated people generally don't need to wear a mask or socially distance during any indoor or outdoor activities.
Bernard Flynn, owner of Trident Booksellers & Cafe in Boston, said a pick-up in business that he started to see in Mach has continued. Sales at the store fell 50% in 2020, earlier in the pandemic, compared to 2019, Mr. Flynn said. Now, sales are off about 25%, he said.
Mr. Flynn said he has noticed a pick-up in visitors who are travelers staying in nearby hotels, along with other shoppers who are eager to be out and about.
"People are just so happy to go buy something. We see a lot of that: People just delighted to be browsing in a bookstore," he said.
Mr. Quinlan, of Wells Fargo, said spending should increasingly shift away from goods -- which consumers flocked to during the pandemic -- and toward services as people are able to spend more time outside the home.
"All of that leads to services spending coming back online in a really big way," he said.
A tracker of credit- and debit-card spending from Bank of America showed that spending at department stores fell a seasonally adjusted 28% in April from March, while outlays on clothing and furniture also fell. Spending at restaurants and lodging jumped, however, as did outlays on airlines, which were up 23%.
Retail sales, excluding motor vehicles and gas stations, were up 43% in April, compared with the same month in 2020, when parts of the economy were shut down due to the pandemic, according to Affinity Solutions, a data firm that tracks credit- and debit-card spending.
Sales at restaurants and bars in April more than doubled over the year, Affinity's data show. Compared with 2019 levels, the number of reopened U.S. restaurants has daily hovered above 80% since late April, according to data from OpenTable, the reservation platform.
The economy's recovery continues to be uneven, however. Hiring unexpectedly slowed last month. Consumer prices also jumped, raising concerns that inflation may accelerate faster than the Federal Reserve anticipates.
"Inflation is a big concern. As we know, as prices go up, that's going to really erode consumers' purchasing power," said Lindsey Piegza, chief economist at Stifel.
Fed officials have said the surge in prices is likely temporary and that the central bank has tools to combat inflation should it rise too much.
Meanwhile, they have signaled their easy-money policies, including maintaining low interest rates, will remain in place until the labor market is more fully healed.
"The Fed can't keep rates low and continue to stimulate growth -- and raise rates to combat persistently high inflation," Ms. Piegza said. That potentially causes a policy conundrum for the Fed, she said.
Meanwhile, some employers have said they are struggling to hire workers as business picks up.
Mr. Flynn, the Boston business owner, said he is adding workers in anticipation of further relaxing of government mandates. He said he recently gave his kitchen staff raises and lifted his starting wage by $1 to $16 an hour to attract new workers. Since doing so, he has been able to bring on several new staff, he said.
"We're hiring now, planning on restrictions being lifted," he said. "As soon as they eliminate restrictions, we're going to be doing a lot of business. I think the pent-up demand is there," he said.
Write to Amara Omeokwe at email@example.com
(END) Dow Jones Newswires