U.S. consumer spending and prices rose in April

Americans stepped up their spending at auto dealers, hardware stores and e-commerce outlets as retail sales rebounded from two sluggish months.

The Commerce Department said Friday that retail sales increased 0.4% in April from March; sales ticked up just 0.1% in March and fell in February.

The increase suggests consumers are poised to spur faster growth in the April-June quarter after the economy barely expanded in the first three months of the year, reports Christopher S. Rugaber of The Associated Press. Consumer spending, which also includes spending on services such as utilities, rose at its slowest pace in more than seven years in the first quarter.

Read: Why weak Q1 growth in U.S. shouldn’t be a surprise

The rise also indicates that the struggles of large retail chains, such as Macy’s and JC Penney’s, reflect changes in consumer buying patterns more than broader economic weakness. Sales in a category that includes department stores, as well as general retailers such as Walmart, fell 0.5% in April, the government said. Yet a category that includes online retailers reported sales growth of 1.4%, the strongest of any group.

“The retail sales data provide further reason to expect that overall consumption growth will be much stronger in the second quarter,” said Andrew Hunter, U.S. economist at Capital Economics.

The sales gains were widespread, as Americans spent more at electronics and appliance stores, health care retailers, and sporting goods outlets. Sales fell at grocery stores and clothing merchants.

Americans also ate out more, boosting spending at restaurants and bars 0.4%. Auto sales rose 0.7% after falling in March.

Consumer confidence has soared since the presidential election, but spending hasn’t increased as much as the jump in optimism would suggest. Last month’s gain in retail sales was solid but not particularly strong.

Hiring has been steady and the unemployment rate fell to a ten-year low of 4.4% in April. Yet average hourly pay rose just 2.5% over the past year. And inflation has ticked up, eroding most of that wage gain. In a separate report, the Labor Department said consumer prices increased 2.2% in the past year.

For traditional retailers, the slowdown in consumer spending over the winter added to their woes. On Wednesday Macy’s reported sharply lower sales and profits, causing a collapse in its share price.

In fact, brick-and-mortar retailers are suffering through their worst patch since the Great Recession. More than twice as many stores have closed this year than at the same point last year. Bankruptcies are far outpacing last year’s rate. Retailers slashed jobs at the sharpest pace in seven years this spring. And retailers collectively could report the biggest drop in first-quarter profits since 2009.

Consumer prices up, too

Consumer prices rebounded moderately in April as energy prices climbed back up after a sharp decline in March.

The Labor Department says consumer prices rose 0.2% after a 0.3% drop in March, which was the biggest fall in more than two years. Energy prices rose 1.1% after tumbling 3.2% the previous month.

Core inflation, which excludes the volatile food and energy categories, rose 0.1%. Over the past 12 months, inflation is up 2.2%. Core prices have risen 1.9%.

It’s the first time the core inflation index has fallen below 2% since October of 2015, reports Matt Ott of The Associated Press.

Read: Your guide to inflation-proofing clients’ life

“Given other recent economic indicators show accelerating economic growth and unemployment down to the lowest levels of the expansion, we expect that core inflation will reverse course soon and start moving upward again,” said David Berson, chief economist at Nationwide Mutual Insurance.

However, Berson added that there was some risk that the weaker inflation of the past two months was signalling a slowing economy.

The Federal Reserve tries to manage the economy so that annual increases in inflation are around 2%. After mostly lagging below that target since the 2007-2009 recession, inflation has accelerated recently with the unemployment rate falling to 4.4% and energy prices rebounding.

The Fed cut its key interest rate to near zero in the wake of the recession and kept it there for seven years to boost the economy. It is now cautiously raising rates, with three-quarter point increases since December 2015. Analysts expect another hike in June.

Gas prices, which drove down the energy category last month, rose 1.2% after declining 6.2% in March and 3% in February.

Food prices rose 0.2%, driven by the fresh vegetable category, which rose 5.1%, its biggest increase since February 2011.

The cost of cellphone plans, which contributed to last month’s overall decline, fell again along with medical care, apparel, new and used vehicles and auto insurance.

On Thursday, the Labor Department reported that inflation at the wholesale level rose 0.5%, and there was some concern among economists that the sharp increase might carry over to the consumer level. But those increases were moderate and suggest that retailers have not yet passed on those costs to consumers.