Washington—Apparently undaunted by rising gasoline prices, American shoppers spent more in March on a variety of goods, including apparel and accessories, raising hopes that the total U.S. economy may have grown more in its first quarter than expected.
According to figures released by U.S. Commerce Department today, total retail sales for March increased 0.8% to $411.1 billion. Sales were up 6.5% year over year. That beat economists’ average estimate for a 0.3% gain.
“Retail sales rose by 0.8% in March and for the third month, ‘core’ retail (excluding gas and autos) showed solid growth,” said Vimombi Nshom, economist at IFR Economics, a unit of Thomson Reuters. “March’s gain is some two times larger than expected after February’s 1% advance (originally up 1.1%), when the market thought there would be slowed activity after February’s accommodative weather had pulled consumption forward. It is true that some businesses’ sales dropped from February, but overall retail kept its pace.”
Even better, consumers spent in virtually every category, whether at online stores or traditional bricks-and-mortar retailers. Core retail sales rose 0.5% after increasing by the same margin in February. Core sales, which exclude gas, auto and building materials, correspond most closely with the consumer spending component of the government’s gross domestic product report.
In those categories, electronics and appliances, building materials, and clothing stores saw the biggest gains. Sales at clothing and accessories stores were up 0.9% in March and were up 7.9% compared with March 2011.
“Consumers are back in a big way,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi.
Indeed even though Americans paid 27 cents more per gallon of gasoline than they did the prior month, they continued to spend on themselves and their homes.
Spending Poised to Slip a Bit?
Since consumer spending accounts for as much as 70% of U.S. economy, economists closely watch trends since an upswing in spending could translate into a faster growing gross domestic product (GDP) than predicted. Economists’ average estimate has been for a 2.4% first quarter increase.
“Two factors likely contributed to the stronger than anticipated result, including the unseasonably warm weather which encouraged consumers to get out to the stores and shop,” wrote Jim Baird, chief investment strategist for Plante Moran Financial Advisors. “In addition, the Easter holiday fell early in April this year, pushing forward the accompanying shopping season, ultimately providing a boost to March sales. Looking forward, sales growth in the months ahead appears poised to slip a bit as these positive catalysts fade.”
Others question whether the current spending pace will continue, however, since inflation-adjusted wages have actually fallen over the past year and consumers are saving somewhat less.
“Retail sales did not change our general outlook on consumption and we expect a modest outcome for the quarter, so this data is largely consistent with that,” said Tom Porcelli, chief economist at RBC Capital Markets. “The manufacturing data (from New York State) is the report people will hang onto this morning as it essentially collapsed. This is the first of several regional reports, so clearly we did not start April on good footing.”
Porcelli referred to the The New York Federal Reserve Bank report issued today that showed the “Empire State” manufacturing activity index fell in April to 6.56, the lowest reading in five months, from 20.21 in March.
“Moderate retail sales growth in March will help to offset murkier recent economic employment data,” said Jack Kleinhenz, chief economist at the National Retail Federation (NRF). “We expect to see gains through the all-important summer months, but job and weak income growth coupled with stubbornly high gas costs will continue to force consumers to make tough, price-sensitive choices.”