Strong US retail sales boost first-quarter growth estimates
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[April 16, 2024] By
Lucia Mutikani
WASHINGTON (Reuters) - 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. Some economists see the window
for lowering rates this year closing.
Strong retail sales prompted economists at Goldman Sachs to boost their
gross domestic product (GDP) growth estimate for the first quarter to a
3.1% annualized rate from a 2.5% pace. The economy grew at a 3.4% rate
in the fourth quarter.
"The stronger economic activity remains, the slower inflation declines
and the later the Fed responds with rate cuts," said Kathy Bostjancic,
chief economist at Nationwide. "The lack of moderation in consumer
spending and inflation ... could push off rate reductions to next year."
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%, which was the largest gain in just over a year, instead
of the previously 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%. 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 higher-income 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.
Financial markets and most economists have pushed back their
expectations for the first rate cut to September from June, and
anticipate two rate cuts instead of the three envisaged by policymakers.
A few economists believe the U.S. central bank could still initiate its
easing cycle in either June or July.
The Fed has kept its policy rate in the 5.25%-5.50% range since July. It
has raised the benchmark overnight interest rate by 525 basis points
since March 2022.
"A June cut is not out of the question, but the balance of risks is
tilting toward the first rate cut coming later in the year," said
Michael Pearce, deputy chief U.S. economist at Oxford Economics.
Stocks on Wall Street were trading largely higher, with investors
keeping a wary eye on the Middle East. The dollar rose against a basket
of currencies. Prices of U.S. Treasuries fell, with the yield on the
benchmark 10-year note hitting a five-month high.
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People visit a retail store during the holiday season in New York
City, U.S., December 15, 2022. REUTERS/Eduardo Munoz/File Photo
RESILIENT CONSUMERS
Sales last month were boosted by a 2.7% acceleration in online
receipts, which followed a 0.2% gain in February. Amazon held a
spring sales promotion last month.
Sales at gasoline stations rose 2.1%, reflecting higher prices at
the pump. Building material and garden equipment store sales
advanced 0.7%. 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 pockets of weakness. Receipts at motor vehicles and
parts dealers fell 0.7%. Furniture store sales slipped 0.3%, likely
as higher mortgage rates constrain home purchases. A survey from the
National Association of Home Builders on Monday showed confidence
among single-family homebuilders was unchanged in April.
Sales at sporting goods, hobby, musical instrument and book stores
dropped 1.8% last month. That suggests households continue to focus
on essentials and are cutting back on discretionary spending.
Receipts at electronics and appliance outlets decreased 1.2%, while
those at clothing retailers fell 1.6%.
Retail sales excluding automobiles, gasoline, building materials and
food services increased 1.1% in March - the biggest gain since
January 2023. Data for February was revised higher to show these
so-called retail sales gaining 0.3% instead of the previously
reported unchanged reading.
Core retail sales correspond most closely with the consumer spending
component of GDP. The jump in core retail sales in March and the
upward revision in February erased the dip in January and led
economists to expect that growth in consumer spending in the first
quarter probably matched the fourth quarter's brisk pace of 3.3%.
That estimate does not take into account services, the biggest
component of consumer spending, leaving an upside risk to both
spending and GDP growth in the January-March quarter.
The growth picture was further brightened by other data from the
Census Bureau showing business inventories rose 0.4% in February
after being unchanged in January.
"Given the various stimulus programs have stopped and money from
them has been spent, consumer spending now rests firmly on incomes
from paychecks, which continue to expand along with the labor
market," said Robert Frick, corporate economist at Navy Federal
Credit Union. "This means a solid expansion should continue."
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul
Simao)
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