US retail sales defy predictions

US retail sales increased more than expected in March amid a surge in receipts at online retailers, further evidence that the economy ended the first quarter on solid ground.

The report from the commerce department on Monday, which followed news this month of robust employment gains in March and a pickup in consumer inflation, bolstered expectations that the Federal Reserve could delay cutting interest rates until September.

It prompted economists at Morgan Stanley to raise their GDP growth estimate for the first quarter to a 2.7% annualised rate from a 2.4% pace. GDP grew 3.4% in the fourth quarter.

“The continued resilience of consumption is another reason to suspect the Fed will wait longer before starting to cut interest rates, which now we think won’t happen until September,” said Andrew Hunter, deputy chief US economist at Capital Economics.

March retail sales rose 0.7% month on month, the commerce department’s Census Bureau said. Data for February was revised higher to show sales rebounding 0.9% instead of the previously reported 0.6%.

Economists polled by Reuters had forecast retail sales, which are not adjusted for inflation, would rise 0.3% in March.

Sales jumped 4% on a year-onyear basis in March.

Despite higher inflation and borrowing costs, spending is holding up, confounding predictions of distress among lowerincome households, thanks to the resilient labour market.

“Though lower-income consumers have been disproportionately affected by inflation, they have also been the biggest beneficiaries of the robust labour market,” economists at Bank of America Securities wrote in a note. “Lower-income workers have seen the largest cumulative wage gains since the start of the pandemic.”

WAGE GROWTH

Job gains averaged 276,000 per month in the first quarter, compared with 212,000 in the October-December period. Wage growth remains above 4% on a year-on-year basis.

Sales last month were boosted by a 2.7% acceleration in online receipts after a 0.2% gain in February.

Sales related to dining out, which economists view as a key indicator of household finances, rose 0.4% after climbing 0.5% in February.

But there were some pockets of weakness. Households continue to focus on essentials and are cutting back on discretionary spending with receipts at electronics and appliance outlets decreasing 1.2% and clothing retailers falling 1.6%.