Retail Sales Jump As Consumers Power Through Inflation

April 19, 2024

Rising prices did little to deter consumers in March, as retail sales rose at a much faster pace than expected.

Retail sales, which include spending online, in-store, and at restaurants, jumped 0.7% in March, according to the Commerce Department. That’s more than double the 0.3% increase that economists polled by Dow Jones had been expecting, but still a slowdown from February’s upwardly revised 0.9% gain.

Retail sales data is adjusted for seasonality, but not for inflation. The Labor Department’s consumer price index (CPI) showed that prices increased 0.4% in March, also exceeding Wall Street expectations. That means that consumers more than kept pace with inflation, which ran at an annual rate of 3.5% in March, well below the 4% annual gain in retail sales.

The “core” control group of retail sales, which excludes volatile components, saw an even more impressive 1.1% increase for the month, easily topping economist projections of a 0.5% increase.

Robust consumer spending has helped power the economy in the face of higher interest rates and concerns over stubborn inflation. Consumer spending accounts for nearly 70% of U.S. economic output, so a slowdown could have far-reaching impacts.

There is some cause for concern in the recent report. Much of the month’s gains came from climbing gas prices, with sales up 2.1% for the month at gas stations. Several categories saw slowing sales, with electronics and appliance sales falling 1.2%. These items are typically bought on credit, so the impact of higher interest rates may be holding back sales at these retailers.

The Federal Reserve is likely to weigh the report’s data closely as policymakers determine the course of interest rates. Resilient consumer spending could spur the Fed to keep rates elevated for longer.

Signals from traders, which have been highly volatile over the past several weeks, are pointing to the first cut coming in September, according to the CME Group’s FedWatch gauge of futures prices.

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