Analysts said steady increases in sales in recent months suggest consumers are weathering inflationary headwinds.
“The desire to spend is strong among American consumers. … Americans have broken the shackles of covid and are not coming back,” said Jamie Cox, managing partner of Harris Financial Group.
Inflation eased slightly in April, with prices rising 0.3% from the previous month, according to the Bureau of Labor Statistics. But prices remain at their highest level in 40 years after climbing 8.3% a year ago.
The Federal Reserve has raised interest rates twice this year in an effort to quell inflation, and five more hikes are expected. Rising rates have been a major drag on stock markets this year, but strong consumer spending momentum suggests the economy can withstand any jolt, analysts said.
“Numbers like this call into question any forecast of a 2022 recession in the United States,” Cox said.
Home Depot and Walmart, two retail leaders, reported mixed financial results. The hardware and home goods chain posted its best-ever first-quarter results as home improvement sales boosted quarterly revenue to $38.9 billion, an increase of 3.8% compared to last year.
“The strong performance in the quarter is even more impressive as we were comparing against last year’s historic growth and faced a slower start to spring this year,” Chief Executive Tad Decker said in a press release.
Walmart saw revenue rise 2.4% to $141.6 billion for the quarter, but the company’s preferred profit measure fell nearly 0.9%. Its adjusted earnings per share came in at $1.30, missing Wall Street expectations by 18 cents, according to Refinitiv data reported by CNBC.
Chief executive Doug McMillon said the results reflect the “unusual” business environment as the company struggled to navigate the swings in the economy caused by the pandemic.
Walmart found itself overstaffed as the omicron variant of the coronavirus subsided in March and April, McMillon said. The company had hired more workers to make up for covid-related absences, but those on furlough returned earlier than expected. “It just took time in March and April to bring payroll costs in line with sales,” McMillon told investors.
The company also encountered supply chain issues that resulted in unexpected costs. Container and storage spending soared, while fuel costs weighed on its logistics network.
Fuel prices have been high for several weeks, after the Russian invasion of Ukraine pushed up oil prices. On Tuesday, the US average for a gallon of gasoline stood at a record $4.52 a gallon, according to AAA, more than $1.50 more than a year ago.
And for the first time, AAA said, the average is at least $4 a gallon in every state.
Meanwhile, consumer confidence fell to its worst level in 11 years in early May, according to a widely watched survey from the University of Michigan.
“April’s spending spree is keeping the winds of recession at bay for now, but for how long is the question,” said Chris Rupkey, chief economist at FWD Bonds. “Gasoline prices are going back up in May and that’s likely to keep consumers away from discretionary shopping or a night of fine dining. Stay tuned.”