After a tepid stretch that started late last year, consumers opened up their wallets in March, and retailers were the beneficiaries.
Retail sales surged by 1.6% in March, easily beating expectations for a 1% increase from the prior month. That strong increase represented the best single-month advance since September 2017. Excluding vehicle sales and gas, sales improved by 0.9%.
Strong vehicle sales growth of more than 3.0% certainly played a role, as did surging gas prices that boosted station receipts. Still, gains were relatively broad based, as clothing and furniture sales also had outsized advances.
Stronger retail sales provide some reassurance that the softening in the pace of growth isn’t cause to sound the alarm bells on the economy. Three consecutive months of declining sales can be an ominous sign, but that threshold wasn’t breached. Although sales have been choppier since November, the solid March gain should provide reassurance that the consumer sector is still healthy.
Why the strength? Start with the jobs sector. Unemployment remains exceptionally low at 3.8%, as does the pace of layoffs. Jobless claims dipped to just 192,000 last week – the lowest level in nearly fifty years, when both the economy and the labor market were much smaller than they are today.
Measures of the consumer mood have slipped in recent months in acknowledgment of the slowing economy, but sentiment still remains quite upbeat in a historical context. Supported by strong labor market conditions and improving wage growth, household spending appears well positioned to increase in the coming months. As the largest single driver of the economy, that is a positive sign for the near-term outlook.
The bottom line is this: fears about the softening in the economy late last year were overblown. Taken in its totality, a broad swathe of data still paints a largely positive picture.
Certainly, the pace of growth has slowed, but there’s still a vast difference between slower growth and no growth. For now, there’s ample reason to believe that the economy remains on track.
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