The Commerce Department reported Monday that higher inflation in March did not deter consumers, who continued to shop at a faster pace than expected.
Retail sales rose 0.7% during the month, much faster than the Dow Jones forecast for a 0.3% increase although lower than the upwardly revised 0.9% in February, according to Census Bureau data that is adjusted for seasonality but not for inflation.
The Consumer Price Index rose 0.4% in March, the Labor Department reported last week in data that was also above Wall Street expectations. This means that consumers were able to keep up with the pace of inflation, which reached an annual rate of 3.5% during the month, less than the 4% increase in retail sales.
Excluding auto-related revenues, retail sales jumped 1.1%, well above estimates of a 0.5% rise. Core group stocks, which exclude many of the volatile measures that go into the formula for determining GDP, also rose 1.1%.
Higher gas prices helped push the headline retail sales figure higher, with sales rising 2.1% month-on-month at service stations. However, online sales were the biggest area of growth for the month, rising 2.7%, while miscellaneous retailers saw a 2.1% increase.
Multiple categories reported sales declines for the month: sporting goods, hobbies, musical instruments and books posted a 1.8% decline, while clothing stores fell 1.6%, and electronics and appliances saw a 1.2% decline.
Stock market futures added to gains after the report, while Treasury yields also rose sharply. The upbeat outlook for the Wall Street open came despite escalating tensions in the Middle East over the weekend as Iran launched air strikes on Israel. Stocks gave up gains later in the session as yields rose.
“Strong sales growth in March saved a modest quarter for retailers,” said Jim Baird, chief investment officer at Plant Moran Financial Advisors. “Q1 growth will not generate a round of optimism, but closing the quarter on a strong note should allow them to breathe a sigh of relief and a glimmer of hope that momentum can continue over the coming months.”
Resilient consumer spending has helped keep the economy afloat despite rising interest rates and concerns about stubborn inflation. Consumer spending represents nearly 70% of US economic output, so it is critical to continued growth in GDP.
Monday's data comes as market concerns grow about the course of monetary policy. Federal Reserve officials have expressed caution about cutting interest rates as inflationary pressures persist, and investors have been forced to lower their expectations for policy easing this year.
Strong consumer spending could prompt the Fed to postpone cuts for longer, said Andrew Hunter, deputy chief U.S. economist at Capital Economics.
“Along with the recent rebound in employment growth, continued consumption resilience is another reason to doubt that the Fed will wait longer before starting to cut interest rates, which we now believe will not even happen,” Hunter said in a note after the Fed's meeting. September”. Release for retail sales.
Market prices, which have been very volatile over the past few weeks, are also pointing to the first cut coming in September, according to CME Group's FedWatch gauge of futures prices.
In other economic news on Monday, the Empire State Manufacturing Index, which measures activity in the New York area, rose in April from the previous month but remained in contraction territory. The index came in at -14.3, better than March's reading of -20.9 but below the Dow Jones estimate of -10.
The index measures the percentage of companies reporting expansion versus contraction, so anything below zero represents contraction. Shipment readings and delivery time decreased, while prices paid increased.
