Spring spending stayed strong as economic pressures intensified

Retailer Bottom Line: Spending continued to power ahead in April, but now that tax refund season is over, expect a cloudier outlook heading into the summer as consumers — particularly lower-income consumers — struggle with higher prices amid weaker wage growth. 

For the seventh month in a row, retail sales grew in April, coming in at 0.34% above March according to the CNBC/NRF Retail Monitor. As with previous months, spending was strong in most categories, with sales of discretionary goods matching the growth in spending on essentials. Spending on clothing and accessories led the way, growing 0.6%, followed by health and personal care stores and miscellaneous retailers, both up almost 0.5% month over month. 

 As we saw in February and March, the windfall from higher-than-normal tax refunds continued to power spending growth and offset higher gas prices. Analysis from Pyxis by Bain & Company shows that the rapid rise in spending on gas has had almost no effect on the trajectory of retail sales spending. Interestingly, spending on discretionary items actually rose while overall spending remained on trend. 

While on the surface the picture looks quite positive, there are reasons for concern. Firstly, spending continues to be dominated by higher-income households who are much less impacted by increased gas prices. Secondly, with tax refund season now at an end, much of that windfall has likely been received and spent. Finally, with inflation running hotter than expected, a significant proportion of these gains likely resulted from pricing pressure rather than real sales growth.  

In April, for the first time since 2023, inflation appears to have caught up to wage growth, meaning that households — particularly on the lower end on the income spectrum — are likely seeing zero to negative wage growth. May and June data will be important to watch in order to understand if any of these factors will translate into a more significant downward shift in pace of real retail sales growth.