While the news has been dominated by the negative impact of tariffs, today’s retail sales numbers show that consumers have continued to advance their retail spending even in the face of rising uncertainty.
An overall growth rate of 5.2 per cent is impressive and represents the best uplift since February of 2024. In volume terms, sales increased by a less spectacular, but still respectable, 2.3 per cent. Core retail sales – which exclude gasoline, autos and foodservice – expanded by 5.1 per cent in monetary terms.
In some ways, this is not all that surprising, as the actual impact of tariffs on prices and products has not yet hit the shopper. The effect, to date, has been much more around depressing consumer confidence – something that is worrying, but is more nebulous in terms of its influence on spending.
The fact is that the amount people spend is influenced by two factors: their ability to spend, and their willingness to spend. Despite all the chatter, there has not been a significant deterioration in the former factor; this may come later in the year if economic conditions deteriorate, but it is not yet present to any large degree. The second factor is somewhat less important but, in normal circumstances, it should be modestly unhelpful to spending. However, this did not come to pass in April for several reasons.
Foremost among them is the fact that the potential of tariffs to increase inflation has encouraged some consumers to pull forward spending to lock in current prices. Overall, we estimate that $3.2 billion of the core retail growth over last year is due to a pull-forward effect. This means, the pull-forward contributed 0.7 percentage points of the 5.1 per cent of core retail growth. The pull-forward is particularly sharp in bigger ticket sectors like furnishings and electronics.
The worry here is that this spending will come at the cost of future growth. In effect, current uplifts are not really a sign of strength, they are a sign of consumer nervousness and perhaps something of a last hurrah before a period of more modest spending behavior.
The other factor that helped April is the later Easter. This gave a nice boost to the month, which augmented growth, especially in food and home decor. Obviously, this will not be repeated in future months, so it is reasonable to expect a deterioration in the current growth rate.
On a sector basis, food and grocery stores had a very robust April with sales up by 5.5 per cent. Most of this is due to the timing of Easter, which fell squarely into April this year. While our data show there has been some stocking up on food and essentials because of the fear of tariffs, this is only marginal.
Apparel stores also put in a good performance with sales up by a very solid 5.9 per cent. Closet refreshes as spring weather arrived were helpful, but consumers also used the excuse of tariffs pushing up future prices to justify more elevated levels of spending. It is doubtful that growth will remain at this level for the balance of the year, although as apparel is a regularly purchased item, the fall back should not be as onerous as in bigger-ticket categories.
One of the most impressive uplifts came from home furnishings stores, where sales rose by 7.7 per cent. Here, a huge chunk of spending was driven by consumers buying more expensive items before they are hit by tariffs. There is something of an embryonic recovery in the housing market and an uplift in the natural purchase cycle kicking in, but, by our estimations, these things alone only produce underlying growth of around 2.2 per cent.
Putting all the pieces together, while the retail sales numbers are far from being a disaster and, in some ways, show great resilience, they are not quite as robust as the headlines suggest. Of course, if tariffs push up prices, it may actually flatter the future growth rate of retail sales, but it will likely suppress underlying volumes. And that should serve as a warning to retailers that the competitive environment is likely to become tougher as the year progresses.
