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Retail sales excluding gasoline rose strongly for the second month in a row, picking up 0.6% in March. Strong sales gains were widespread across categories, except for clothing, sporting goods, and miscellaneous retail, which had all increased robustly in February. Of particular note were three consecutive months of very strong e-commerce gains of better than 1%. E-commerce now accounts for 28% of retail sales excluding motor vehicles and gasoline. Motor vehicle sales rose a healthy 0.5%.
Restaurant sales rose a tepid 0.1%, indicating that consumers may be starting to economize a bit in this area. Spending on services excluding dining slowed to a 0.3% gain in February, after rising 0.8% in January. (February is the latest month for which services spending data, other than dining, are available. March data will be available on April 30.)
Consumers have shown resilience in the face of rising gasoline prices that are now $1 a gallon higher than before the Iran war. Going forward, inflation will skew nominal sales upward in certain categories, but inflation-adjusted consumer spending may soften a little. Consumer sentiment measures are in the dumps, again, though they don’t seem to be correlated very strongly with spending. We expect that high gasoline prices will continue to dampen sentiment, and weak sentiment could have an impact on overall retail sales if it gets low enough. Gasoline prices will also be a drag on travel and recreation spending as the weather warms. Also, wage growth is expected to slow somewhat. The hiring slowdown is creating job anxiety, even among people who are employed. Households tend to cut spending and add to savings when the possibility of losing a job looms. If the unemployment rate or initial claims for unemployment rise, that fear will intensify. Look for the personal saving rate to rise to 5.4% by the end of the year, from 4.0% in February.
One tailwind for spending is that tax refunds have been larger than normal by 16%, or $342 on average, according to Internal Revenue Service data through early April. It is likely that this will be noticeable in the Northeast and Pacific Coast states, given the higher cap on state and local tax deductions on federal returns.
