The US Consumer Refuses To Crack

Key Takeaways

• Control‑group retail sales grew 0.5% in April, outpacing expectations
• Annualized control‑group spending hit 8%, fastest since June 2022
• Equity owners report 15‑point lower inflation distress than non‑owners
• Tax refunds added $350 per household, insufficient for discretionary boost
• Jobless claims rose to 211,000 but remain historically low

Pulse Analysis

The latest U.S. retail‑sales report shows a surprising degree of resilience in consumer demand despite rising gasoline and grocery prices. The control‑group index, which strips out volatile categories like auto sales and fuel, climbed 0.5% in April and now runs at an 8% annualized growth rate—the quickest pace since mid‑2022 when headline inflation peaked at 9%. This suggests that the substitution effect—where higher costs for necessities curb discretionary spending—has not yet materialized, keeping the consumption component of GDP robust.

Analysts point to a pronounced wealth effect as the primary driver of this durability. Record‑high equity valuations and soaring home prices have bolstered the balance sheets of the upper half of the income distribution, reducing the relative share of energy and food costs in their overall spending. Survey data from the University of Michigan shows a 15‑point gap in inflation‑related financial distress between stock owners and non‑owners, underscoring how asset ownership can blunt consumer sentiment even as headline inflation outpaces wage growth.

However, the picture is not uniformly rosy. Jobless claims edged higher to 211,000, hinting at a softening labor market, while broader consumer sentiment remains at historic lows. If equity markets were to retreat or if wage growth fails to keep up with price gains, the current spending momentum could erode quickly, prompting a sharper pullback in non‑essential categories. Policymakers and investors should monitor these dynamics closely, as the interplay between wealth effects and real‑income pressures will shape the trajectory of U.S. consumption and, by extension, economic growth.