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Total retail and food service sales excluding gasoline jumped 1.7% in March, on the back of a 5.3% surge in motor vehicle sales, as consumers tried to beat auto import tariffs that took effect on April 2. Excluding motor vehicles and gasoline, sales rose a still-robust 0.8%, likely due to better weather and perhaps some front-loading of purchases before reciprocal tariffs on most imported goods were announced.
Strong sales growth was seen in building materials, sporting goods and hobbies stores, and at restaurants. The pickup in dining out was a welcome surprise, given weak performance there over the previous four months. E-commerce sales were almost unchanged, maintaining the high level of February’s sales. In-store sales had a good month, rising 0.5% even without the building-materials surge.
Spending on other services excluding dining rose a moderate 0.4% in February (the latest month for which services spending data other than dining are available). Spending on services had been pretty consistent, with 0.5% to 0.6% monthly increases during most of 2024. We expect that services spending will be reported to have improved in March, because of the better weather. These data for other services will be published at the end of April.
Consumer spending growth will likely slow this year, for multiple reasons: Income growth is flattening since hiring is declining; the stock market has reversed course, making some consumers worry more about their finances; and tariffs plus layoffs of federal workers and contract terminations will create ripple effects and economic uncertainty for consumers and businesses alike. Preliminary consumer sentiment for April showed yet another sharp drop, for the third month in a row.
Finally, even if the unemployment rate does not rise much, fears of job losses will likely boost the household savings rate to 6%, from below 4% late last year. More saving means less spending on current consumption: a prudent move for individual consumers during times of uncertainty, but a headwind for the overall economy.
