Spending at US retailers rose in March for the second consecutive month, underscoring the strength of the US consumer fueled by a robust job market.
Retail sales rose 0.7% in March from the prior month, a slower pace than February’s upwardly revised 0.9% gain, the Commerce Department reported Monday. That beat the 0.4% increase that economists projected, according to a FactSet poll. The figures are adjusted for seasonal swings but not inflation.
Retail spending has increased in seven of the past 10 months through March.
Sales were up across several categories in March, including at gas stations, which increased a strong 2.1% from February. Gas prices have steadily risen in the past several weeks. Still, excluding sales at gas stations, retail sales were up 0.6% in March.
Online sales jumped 2.7% in March, while specialty stores saw sales increase a solid 2.1%. Spending at restaurants and bars rose 0.4% last month. Meanwhile, sales of electronics, clothes, and sporting goods fell 1.2%, 1.6% and 1.8%, respectively.
“Today’s retail sales figures show strong consumer spending wrapping up the first quarter of 2024,” said Claire Tassin, retail and e-commerce analyst at Morning Consult, in a note Monday. “In March, promotional activity from e-commerce brands like Amazon helped to drive up online sales.”
No rush to cut rates
Monday’s report adds to evidence that the US economy remains solid, keeping the Federal Reserve in wait-and-see mode. A strong economy means the Fed won’t be in a rush to cut rates, especially considering that there are some signs that inflation’s progress has stalled in recent months. Fed officials have said they are not yet convinced that inflation is truly headed toward their 2% goal.
“With inflation running above target, economic growth continuing to show momentum, and elevated prices across a range of asset markets, the current stance of monetary policy is appropriate,” Kansas City Fed President Jeffrey Schmid said Friday at a conference in Overland Park, Kansas. He does not vote on interest rate decisions this year.
“Therefore, rather than preemptively adjust the policy rate, I would prefer to be patient and wait for clear and convincing evidence that inflation is on track to hit our 2% target before adjusting the stance of policy,” he said.
For now, interest rates are at a 23-year high after the Fed raised rates aggressively starting two years ago. Analysts at major Wall Street banks have recently pushed back their estimates on the timing of the first rate cut. Goldman Sachs is forecasting the first cut to be in July instead of June, while Bank of America now sees the first cut in December instead of June.
Could robust spending persist?
Americans have been on a spending spree these past few years and economists argue that will likely continue this year.
The US economy grew at a brisk pace last year, thanks to strong consumer spending, which accounts for about two-thirds of economic growth. Spending has remained solid, even in the face of still-high inflation and elevated interest rates.
“Households are just not changing their spending patterns, but they’ve been changing everything else,” Shannon Seery Grein, an economist at Wells Fargo, told CNN previously. “There has been this change in psyche in which they change everything to fit their spending patterns. They’re saving less on a monthly basis, they’re pulling out money from other assets such as retirement accounts, we’ve seen a pickup in Buy Now Pay Later, we’ve continued to see a pickup in credit card usage and so on.”
“I think you’re going to keep seeing households spend at the rates that they have,” she added.
The Commerce Department releases broader figures on consumer spending for March later this month. In February, spending on goods and services advanced 0.8%, the strongest monthly gain in more than a year. Consumer spending hasn’t contracted since March 2023.
And as long as the job market remains healthy, so will spending. Employers added a shocking 303,000 jobs in March as the unemployment rate fell to a low 3.8% that month. Annual wage growth, measured as average hourly earnings, slowed last month, but it continued to beat inflation.
The US job market is currently one of the strongest in history: Job growth has expanded for 39 straight months, the fifth-longest streak on record, and the unemployment rate has been below 4% for more than a year.
