April US retail sales rise as expected; default risk climbs

US retail and food services sales rose in April with increases in nine of 13 categories.

Sales in April grew 0.5% month over month, meeting the consensus forecast, according to advance estimates from the US Census Bureau and analyst data compiled by Econoday. Previously reported sales for March were revised to show a 1.6% month-over-month increase, down from the originally estimated 1.7% increase.

Retail numbers rose in April even when excluding a continued rise in gasoline station sales amid elevated fuel prices, suggesting that inflationary pressures have yet to dent spending among higher-income consumers.

"The powerful equity market rally is supporting spending on the upper leg of the K-shaped expansion, more than offsetting any pullback from those on the lower leg who are struggling with higher fuel, transportation and food costs," BMO Senior Economist Sal Guatieri said in a May 14 note.

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Amid resilient spending, however, consumer debt has hovered near record levels this year. US consumer credit card debt totaled $1.252 trillion in the first quarter, down from a record $1.277 trillion in the preceding quarter, according to Federal Reserve Bank of New York data. Meanwhile, total household debt hit a record $18.794 trillion in the first quarter.

"Rising credit card debt nationwide suggests many everyday consumers are struggling to keep up with everyday expenses and make ends meet," Leslie Tayne, founder and head attorney at Tayne Law Group, a debt solutions law firm, said in an email to Market Intelligence. "This is a strong sign that inflation continues to strain household budgets. More Americans are relying on credit to pay for essentials as pandemic-era savings have largely been depleted."

Pressure on consumers could mount as balances rise and probabilities fade for interest rate cuts by the Federal Reserve this year due to inflation concerns.

"While rates are lower than historic levels, borrowing costs are still expensive for the everyday consumer, especially on revolving debt such as credit cards," Tayne said.

The Fed has held its benchmark rate steady this year between 3.50% and 3.75%, but consumer credit card rates averaged 21% in February, near a record high, according to the Fed's most recent data.

Meanwhile, the median probability of default for publicly traded retail companies increased in May from April. Market Intelligence recorded no bankruptcies among public and select private retailers in the first half of May.

Sales

Retail sales in April increased month over month in nine of the 13 retail and food service categories tracked by the Census Bureau.

Gasoline stations again recorded the largest sales increase, up 2.8% month over month, after surging 15.5% in March as global oil prices spiked. Excluding gasoline stations, total retail and food sales rose at a 0.3% rate in April.

Sales at gasoline stations in April climbed nearly 21% year over year.

After gasoline stations, sales increases by business type were led by electronics stores and a specialty category that includes sporting goods, hobby, musical instrument and book retailers.

Month-over-month retail sales declined for automotive, furniture and clothing retailers.

Core retail sales in April improved by 0.5% from the preceding month. This measure excludes motor vehicles, gasoline stations, food services, and building materials and gardening equipment, and is used in monthly personal consumption expenditure estimates that feed into GDP calculations.

Default risk

The median probability of default for publicly traded retailers was 2.4% as of May 12, rising from 1.8% on April 20, according to Market Intelligence's market signal probability of default model. The data covered 200 companies in the retail sector.

The percentages represent the median probability that a company will default on its debt within a year. They are based primarily on share price volatility for public companies on major US exchanges and account for country and industry risks, as well as other macroeconomic factors.

The median probability of default increased in 12 of the 15 retail industries tracked by Market Intelligence, led by home furnishing retail with a 1.3-percentage-point increase to 4.4%. Home improvement retail followed, up 1.2 percentage points to 2.8%.

The default risk declined for drug retail and food retail, and remained steady for consumer staples merchandise retail.