April’s U.S. Retail Sales report released yesterday showed U.S. spending growing strongly despite inflation and rising interest rates. But earnings reports from two retailers show a different story.

What’s the big deal? Retail data can help signal whether the economy is headed towards a recession and the data says not today.

• Retail sales grew 0.9% in April, while economists forecasted a 1% increase.
• Retail sales (excluding auto and gas stations) rose 1% — higher than the forecasted 0.7%.

But the data includes inflation and higher prices — which contributed to the rise in April’s retail sales, per Compound Advisors Founder, Charlie Bilello.

Tough luck on the other side of the world. China’s retail sales fell 11.1% in April compared to a year ago — after a near two-month lockdown impacting one of its biggest cities, Shanghai.

The bellwethers: Two retailers — seen as leading indicators for consumer spending — reported earnings yesterday:

• Walmart (NYSE:WMT) fell 11% after reporting a big earnings miss, $1.30 earnings per share vs. $1.48 expected.
• Home Depot (NYSE:HD) rose 1.7% after reporting solid earnings and raising its full-year outlook.

Inflation is having varying impacts on these two companies:

1/ Higher sales, fewer transactions: Home Depot’s total number of transactions fell 8.2% in the quarter — but the amount per transaction rose 11.4%.

2/ Lower profitability: Walmart’s CFO said rising fuel prices, labor costs and inventory levels pressure Walmart’s margins (CNBC). Rising food costs — which have lower margins than other products — also hurt Walmart’s bottom line.

Consumers are shifting to lower quantity packages and Walmart’s cheaper, private brands — signs that consumer wallets are under pressure.