Chart of the Day: Americans Actually Spent Less in April

Is retail spending really rising? Yesterday, the headlines reported that it was. It increased by 0.5%, according to the Census Bureau. But this doesn't tell the whole story. If you look deeper, you find a very disturbing trend: retail purchases are shrinking.

Throughout 2011, food and gasoline prices have risen steeply. As a result, consumers are forced to spend more of their money on these resources, even if they keep their consumption of gas and food constant. So it helps to take the influence of these items out of the retail spending equation. Only then can we begin to see whether consumers are willingly spending more money. Here's a chart that shows retail spending, without food and beverage stores, restaurants and bars, and gas stations:

It's pretty clear what's happening since February -- spending growth is declining. In fact, it was nearly flat in April. That 0.5% headline increase reported was due almost entirely to growth in food and energy purchases. Earlier today, we learned that food and gasoline prices rose in April by 0.4% and 3.3%, respectively. So their 1.3% spending growth could very well indicate a decline in consumption of these items. The Census Bureau statistics do not account for inflation.

Without food and energy, retail sales only grew by 0.1% in April. Meanwhile, core inflation -- which excludes those items -- increased by 0.2%. Again, this suggests that the lackluster retail spending growth wasn't real, but due to inflation. It's likely that Americans actually purchased fewer retail goods and services in April than in March.

This is not a good sign for the U.S. economy. Even if nominal purchases are increasing, if Americans are buying less actual stuff, then that means they aren't demanding additional goods and services from businesses. Without sensing that additional demand, firms won't ramp up hiring much and unemployment will remain higher for longer. At this point, it looks like rising food and energy prices have begun to crowd out other spending.