Retail Sales Pull Back in April, While Both Reported and Expected Inflation Continue to Climb
- Retail sales and food services were essentially unchanged in April as food services offset a decline in overall retail sales, while data in March was revised upward by almost a full percentage point, according to the Census Bureau. Sales of motor vehicles and parts increased 2.9 percent. When excluding motor vehicles, retail sales and food services fell 0.8 percent. Sales at building supply stores and gas stations declined 0.4 and 1.1 percent, respectively, while sales at food service establishments rose 3.0 percent. Core retail sales (excludes food services, motor vehicles, building supplies, and gas stations) fell 1.5 percent, as sales in major categories, such as nonstore retailers, either declined or remained relatively flat after the impressive strength seen in March.
- The University of Michigan Consumer Sentiment Index fell 5.5 points to 82.8 in the preliminary May reading, the largest decline since July 2020. Both indices for current economic conditions and consumer expectations declined. Consumer expectations for inflation over the next year surged, rising 1.2 percentage points to 4.6 percent, the highest expected rate since April 2011. Inflation expectations over the next five years also increased, rising four-tenths to 3.1 percent, breaking past 3.0 percent for the first time since March 2011.
- The Consumer Price Index (CPI) rose 0.8 percent in April, the largest monthly increase since June 2009. Energy prices fell 0.1 percent. Core CPI (excludes food and energy prices) rose 0.9 percent, the largest monthly increase in 39 years. Part of the increase was driven by strength in prices for new/used cars, airfare, and lodging away from home (includes hotels/motels). When those categories are removed, core CPI rose 0.4 percent. From a year ago, CPI rose 4.2 percent and core CPI rose 3.0 percent.
- The National Federation of Independent Business (NFIB) Small Business Optimism Index increased 1.6 points in April to 99.8, the highest level since November 2020. The share of firms planning capital expenditures in the next 3-6 months jumped 7 percentage points to 27 percent, while the share of firms expecting the economy to improve fell 6 percentage points to a net of negative 14 percent. The share of firms reporting they had positions they are not currently able to fill rose to 44 percent, an increase of 11 percentage points since January.
- The Job Openings and Labor Turnover Survey (JOLTS) showed that job openings continued to climb in March, rising approximately 600,000 to 8.1 million, the highest level on record, according to the Bureau of Labor Statistics. The increase in job openings was particularly strong in the leisure/hospitality, manufacturing, and government sectors. Total hires rose by 215,000, to 6.0 million. Quits rose 125,000 to 3.5 million, with leisure/hospitality employment accounting for over half.
- Industrial production, a gauge of output in the manufacturing, utility, and mining sectors, rose 0.7 percent in April, according to the Federal Reserve Board. Mining, manufacturing, and utilities output rose, though manufacturing output was weighed on by a 4.3 percent decline in motor vehicle production, as semiconductor chip shortages continued to disrupt the industry.
Retail sales in April, less autos, slowed as expected, as the stimulus check-supported strength in March began to wane. While many categories of spending either declined or remained relatively unchanged, spending at food services continued to increase, highlighting the ongoing reopening effort as restrictions continue to be lifted. Going forward, as many cities and states move to lessen or completely remove capacity restrictions on restaurants/other establishments, we believe spending will likely increase further. Consumer spending in the second quarter is likely to be supported by a transition back into services. However, while one would expect the reopening effort to buoy consumer sentiment, inflation concerns are outweighing the positive signs of reopening, with consumers now expecting significant inflation. The CPI report appears to support these concerns, though the April report exaggerates the underlying trend as much of the rise was driven by used car prices due to shortages in auto manufacturing, and likely one-time price-level adjustments in sectors that are now experiencing a recovery in demand, such as hotels and airfares. While the Federal Reserve has remains steadfast in its current accommodative stance, sustained increases in consumer inflation run the risk of an un-anchoring of inflation expectations from the Fed’s target. While the reopening effort is driving inflation concerns, there are also concerns over a shortage of labor. The April NFIB survey showed a continual rise in the share of firms reporting difficulties filling positions, while the recent JOLTS survey shows a similar trend as job openings climbed to a record high. Some of these pressures may be mitigated as COVID-19 worries wane, schools continue to reopen, and extended unemployment benefits expire. However, if labor market tightness persists, it would likely result in a drag on further economic growth while supporting further inflationary pressure. Turning to the industrial sector, output continues to climb, though it remains 2.7 percent below the level seen in February 2020.
Economic and Strategic Research Group
May 14, 2021
Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.