Arun Sundaram, Senior Equity Analyst at CFRA Research, joined Closing Bell's Kristen Scholer to break down the April Retail Sales Report, and discuss what Walmart's earnings tell us about U.S. consumers.

Closing Bell

U.S. Retail Sales Grow 0.9% in April, Showing Strength of Consumer

Welcome back to Cheddar news is closing bell everyone how the latest economic data pointing to the strength of the consumer in America with april retail sales rising 9/10 of a percent despite inflation still close to a 40 year high. Did mark the fourth straight month of higher retail spending with big games coming in, clothing, furniture, and vehicles along with a big jump and bar and restaurant sales. As the weather started, determined Consumer spending comprises 70% of the US GDP and it's a critical component of the economy. Joining me now, is the room some Durham senior equity analyst at CFR I research room, thanks so much for coming on. What's your reaction to april's retail sales report? Yeah, it was thanks for having me. It was certainly strong, strong report. And you know, retail sales are, it's it's interesting because retail sales are rising during a period where consumer sentiment has been falling. So what that kind of goes to show is, you know, consumers are not happy with rising crisis, but you know, they're still spending. And I think a lot of that has to do with the fact that there is a lot of pent up demand still in the system today, especially since covid restrictions have eased and you know very well can continue over the next few months, especially, you know, given the warmer weather over the next few months and and signs of this pent up demand. But you know, on the contrary, there are starting to see some we are starting to some cracks in terms of the overall consumer health today walmart did report earnings and we are starting to see especially among the lower income consumers who, you know, we think are disproportionately impacted by inflation. You know, we're starting to see them starting to trade down, you know, spending more in private label over branded products, maybe trading down and buying a half gallon containers of milk over full gallon containers of milk. So those kind of things, you know, kind of put us a little bit on the worrisome side when it comes to consumer spending later this year, A room with lower-income Americans hurt the worst from soaring inflation at its highest level in nearly 40 years. Is that behind the disappointing results that we saw from Walmart today Walmart of course considered a discount retailer catering to lower income earning Americans. No, I mean, in fact for walmart, you know, they don't really have a demand problem right now, the demand is actually really is fine. The their missed, they missed this quarter was actually on the bottom line, it was really their profits and a lot of that was company specific to walmart, there was some execution issues. Um, so really the missiles on the, on the bottom line, the top line continues to perform really well. And I think the top line will continue to perform really well walmart being a value retailer everyday, low price provider. And I think there's opportunities for more consumers to trade down and go and go more towards value retailers like a like a walmart or Costco or dollar trees, that those those kind of retailers. So I think noteworthy here, overall retail sales of 9/10 of a percent in April from March, but at 8.2% from the same time a year ago and that figure again of 8.2% pretty much deadlock in line with inflation. Consumer prices up 8.3% in the month Of April, with consumer spending accounting about 70% for economic growth. How important is it that the consumer remains holding up and at least in some capacity able to pay these higher prices as we look to avoid a recession. Yeah, I mean, you put you pointed out really well, consumer spending makes up two thirds of our GDP and within consumer spending about 60% goes to services and about 40% is two goods. So the overall consumer health is very important for our economy and to prevent a recession. So it's encouraging right now that consumers are still spending even though prices are higher, just about everywhere. But how long that lasts remains to be seen because, you know, budgets are getting tighter and consumers aren't feeling inflation really everywhere. And the longer this goes on, you'll start to see more demographics of consumers start to trade down and maybe start to cut some of their discretionary spending, which, you know, would hurt some retailers over, over others obviously. So here's a question. Um I don't know, I don't know if the survey data says that people realize that they're paying higher prices or whether or not they're actually just able to absorb that at least for now. It might not be thinking ahead. I don't know the answer to that. If you do please share it. But I am just curious here if the consumer does not push back on these higher prices in a more meaningful way, we're going to continue to see aggressive rate rises by the Fed and of course that's going to hurt the stock market. Which could in turn then hurt the economy if it leads to layoffs, cost cutting and other measures. What's the responsibility of the consumer in an inflationary environment like this? I mean, yeah, you pointed out really Well, I mean consumers need to spend that it's crucial to our to our economy and the longer inflation remains at this elevated level, there's more risk that consumers will start to trade down and cut discretionary spending. So it's critical that, you know, the Federal Reserve does everything in this tool booked to lower to lower the inflation levels here in the in the U. S. And and one point about one of the reasons why I think consumers are also keeping up their spending is we've seen a lot of consumers gravitate more towards uh like club stores and value retailers to purchase maybe the same product but like think about it, and maybe bulk size, for example, so they're not necessarily, you know, uh Trading down per se, but, you know, they are making more conscious, conscious decisions about where they go to shop. And I think that's the first step, you know, of consumers shifting their habits. Step two of Phase two would probably be them, you know, cutting certain discretionary spending. But we really haven't seen that. Haven't seen that yet so far. Alright. Arun Sundaram, senior equity analyst at C. F. R. A researcher room, thanks so much for coming on the show.