Consumer confidence in the United States rebounded from historic lows this month and retail sales edged up in tentative signs that the world’s largest economy is beginning to recover from the impact of a Russia-induced oil price shock.
A monthly measure of consumer confidence from the University of Michigan recovered in April after falling to historic lows following the outbreak of the war in Ukraine. The gauge hit 65.7 this month, up from 59.4 in March and better than forecast by economists polled by Reuters. The numbers were complemented by a small rise in March retail sales of 0.5 per cent, just below expectations of 0.6 per cent.
The US economy is battling high inflation with consumer prices hitting a 40-year record of 8.5 per cent last month. The consumer prices are being driven by record food, commodity and energy costs caused by supply disruption from the war in Ukraine and higher demand after the lifting of pandemic restrictions.
April’s consumer confidence survey was boosted by falls in the oil price after the cost of crude oil surged to $130 a barrel in March. Consumers were also more buoyant over economic expectations in the three months after March.
However, economists warned that the true test of US spending power in the face of rising living costs had yet to be seen. Ian Shepherdson, chief economist at Pantheon Macroeconomics, said household sentiment was largely driven by a recovery in the stock market this month. Overall, he said monthly surveys of spenders “have been much less reliable guides to the path of consumers’ spending in recent years”.
Michael Pearce at Capital Economics said overall consumer sentiment levels “remain close to recessionary levels and we suspect confidence will remain subdued until inflation begins to fall back more markedly in the second half of the year”.
The Federal Reserve embarked on an aggressive interest rate tightening last month and has suggested another six rate rises will follow this year. Investors expect a half a percentage point rise at the Fed’s next meeting next month. Tighter monetary policy raises the cost of credit, with the aim of putting a lid on spending and helping bring inflation closer to the Fed’s 2 per cent target.