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New York (CNN Business)US retail sales came back down to Earth in April after stimulus checks sent Americans on a shopping spree in March.
Month-over-month, retail sales were flat in April, the Census Bureau reported Friday. Stripping out car and auto parts, sales actually declined slightly, by 0.8%. The massive March advance that came on the back of a new round of stimulus checks from the American Rescue Plan was revised up to 10.7%, from 9.7% reported initially.
Even though April sales were slightly weaker than economists expected, total sales over the past three months are still up a whopping 27% compared with the same period a year ago.
The consumer spending boom of the past few months is a good sign for America's recovery because some two-thirds of the economy is driven by people spending money.
The big question is whether the spending pace can hold up as the pandemic-era spending boosters wind down.
"Retail spending is well above pre-crisis levels, so today's report isn't a sign of concern," wrote Glassdoor senior economist Daniel Zhao on Twitter. "Spending may even fall in near future as stimulus wears off & pandemic-induced shifts unwind."
The stimulus checks were a one-off, even though there were multiple iterations. The enhanced unemployment benefits that Congress instituted when millions of jobs vanished last spring are only set to expire in September, but various states, including including Montana, South Carolina, Arkansas, Alabama, Mississippi and North Dakota, are working on terminating the expanded aid over the summer.
Meanwhile, the pace of America's jobs recovery slowed down in April with only 266,000 jobs added back to the economy. That leaves the nation down more than 8 million jobs compared with February 2020. Even though consumer spending has recovered across most categories, that isn't true for jobs, Zhao said.
Inflation in focus
Consumer sentiment also fell slightly in April, underperforming analyst expectations. The University of Michigan's index fell to 82.8 points, compared with 88.3 points in March.
The decline was was due to expectations of higher inflation: Survey participants expected the highest year-ahead and long-term inflation rates in the past decade.
For consumers, expected price hikes also weigh on their real income expectations, which were the weakest in five years, according to the University of Michigan. Among the survey participants, the price mentions for homes, cars and household items were more negative than at any time since the end of the last inflationary era in the 1980s, the data showed.
"Consumer spending will still advance despite higher prices due to pent-up demand and record saving balances," said Richard Curtin, chief economist of the surveys of consumers. "This combination of persistent demand in the face of rising prices creates the potential for an inflationary psychology, fostering buy-in-advance rationales and cost-of-living increases in wages."
Prices are rising — and expected to climb further — as the economy is fully reopening and pent-up demand drives up consumption. In principle, that's a good thing. But too much inflation can be bad: It keeps people saving rather than spending, and it could make the Federal Reserve change its monetary policy stance, which is of particular concern to stock market investors.