Retail sales rise, boosting first-quarter estimates
WASHINGTON – U.S. 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 pick-up 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 gross domestic product growth estimate for the first quarter to a 2.7% annualized rate from a 2.4% pace. The economy grew at a 3.4% rate 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 U.S. economist at Capital Economics.
Retail sales rose 0.7% last month, the Commerce Department’s Census Bureau said. Data for February was revised higher to show sales rebounding 0.9% instead of the reported 0.6%.
Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, would rise 0.3% in March. Sales jumped 4.0% on a year-on-year basis in March.
Despite higher inflation and borrowing costs, spending is continuing to hold up, confounding predictions of distress among lower-income households, thanks to the resilient labor market.
The latest Bank of America credit card data showed lower-income spending continues to outpace higherincome spending.
“An important reason is that, although lower-income consumers have been disproportionately affected by inflation, they have also been the biggest beneficiaries of the robust labor 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.”
Job gains averaged 276,000 per month in the first quarter, compared to 212,000 in the October-December period. Wage growth remains above 4.0% on a year-on-year basis.
Sales last month were boosted by a 2.7% acceleration in online receipts, which followed a 0.2% gain in February.
Sales at gasoline stations rose 2.1%, reflecting higher prices at the pump. Prices at the pump increased by about 8.1% to $3.639 per gallon in March, data from the U.S. Energy Information Administration showed.
Sales at food services and drinking places, the only services component in the report, rose 0.4% after climbing 0.5% in February. Economists view dining out as a key indicator of household finances.
But there were some pockets of weakness. Receipts at motor vehicles and parts dealers fell 0.7%. Furniture store sales slipped 0.3%. Sales at sporting goods, hobby, musical instrument and book stores dropped 1.8%.
That suggests households continue to focus on essentials and are cutting back on discretionary spending.