Retail sales grew at the fastest pace in 18 months during
March, suggesting that consumers and the economy may be finally
emerging from winter hibernation.
Sales rose a seasonally adjusted 1.1% from February, the
Commerce Department said, more than the 0.7% expected. It was the
strongest month-to-month gain since September 2012.
Auto sales, which rose 3.1%, helped propel sales overall. But
even with auto sales stripped out, the resulting 0.7% increase
was the best since February 2013. Most sectors saw a rise, and
February data were revised up strongly.
Retail sales figures can be volatile from month to month but
have been trending higher the past few years. Economists watch
the data closely, as consumer spending accounts for about
two-thirds of the economy.
Other recent economic data offer convincing reasons for the
March bump. Aggregate wages rose 0.7%, the Labor Department said
earlier in the month. Gasoline prices fell, said Stuart Hoffman,
chief economist at PNC Financial Services Group, giving consumers
a little extra discretionary money. Stocks and home values both
rose, contributing to a wealth effect, he says.
"This is real consumer spending, real demand," Hoffman
Debating Winter's Impact
After two months of harsh winter weather, says National Retail
Federation chief economist Jack Kleinhenz, those consumers were
releasing some pent-up demand when they went shopping in
"Improving economic conditions and consumer confidence should
push consumers to return to spending habits this spring," he said
in a statement. "We remain optimistic that retail sales will
continue their positive march this spring."
With the winter in the rearview mirror, a combination of
factors bode well for the economy in 2014. Hoffman thinks the
second quarter will compensate for the weakness in the first, and
the second half will mark a "break out of the 2% zone that we've
been in for years."
Some economists disagree on how much the weather has impacted
the economy. Hoffman thinks that weather as an explanation for
sluggish activity in January and February "hits the nail on the
head" and that the thaw in March proves it.
Jeffrey Rosen, chief economist for Briefing.com, is more
skeptical. Internet sales -- a category that the weather is not
likely to influence -- rose 1.7% on the month in March, he noted.
"I've always been in the camp that says winter was overblown,"
Rosen thinks that wage growth accounts for most of the sales
gains. The length of the workweek and hours worked rose, the
latter to a multiyear high. It means that businesses will need to
step up hiring and boost hours and wages more than they have in
the past few years.
"We've had low growth and businesses at record high profits,
suggesting they can run lean," he said. "But in the end,
consumers can only buy if they have income growth."
But other economists believe that sluggishness in the winter
will result in pent-up demand being pushed forward into 2014.
Sal Guatieri, senior economist with BMO Capital Markets, wrote
in a note to clients that the March data bring expectations of
spending growth from a 2.0% gain in Q1 to "a complete recovery"
in Q2, setting up an annualized 3 1/2% increase in 2014. That
will help boost GDP, Guatieri noted.
Michael Niemira, chief economist at the International Council
of Shopping Centers, said that the rosy March data were received
with relief. "It's a story we all hoped would be in the numbers,"
"We knew that weather depressed January and held back
February, and we were looking for that rebound in last week's
chain-store sales numbers. But the weak weather-induced
chain-store sales numbers didn't make the case as strongly and as
convincingly as the retail sales did today."
He says the Commerce Department report showed nice gains in
retail sales in several store categories, such as general
merchandise, clothing and building materials.
Sales at general-merchandise stores, which include giants such
asWal-Mart Stores (
) andTarget (
), increased 1.9%, while building-materials and garden-supply
stores, such asHome Depot (
) andLowe's (
), rose 1.8%.
Another housing-related category, home-furnishings stores,
posted a 1% gain. It was likely good news for retailers such
asBed Bath & Beyond (
),Restoration Hardware Holdings (RH) andWilliams-Sonoma
Sales at clothing and accessories stores, which include giant
apparel retailerGap (GPS) and women's clothierAnn (ANN), rose 1%
in pent-up demand from the prior two months.
The Discount Dilemma
Two big-ticket consumer questions remain. Auto sales bounced
back nicely in March, to an annualized 16.4 million pace, the
fastest in more than seven years. But automakers had to offer
deep discounts to entice consumers in March. Still, most
economists think that while the pace will ease a bit, it will
stay strong, since the average age of cars on the road remains
high. Hoffman expects sales of 16 million in 2014.
The housing market is another question. Rosen said that the
combination of higher interest rates and higher home prices is
"concerning" in its impact on demand. Declining sales mean less
demand for construction and less price appreciation for current
homeowners. It also hits retail sales, since homebuying tends to
lead to increased demand for home furnishings, building materials
Still, the March pop in retail spending jibes with other
brightening economic data. Consumer sentiment rose to a
nine-month high last week. Producer prices also rose faster than
expected in March, a positive sign of more demand in the
Even mortgage-purchase applications rose 3.0% in the week
ended April 4, the third straight week of gains and a possible
sign that winter's grip on the housing market may be easing.
Homebuying is "the most weather-sensitive of all," Hoffman said.
"I think we'll see a pretty good rebound in homebuilding and
homebuying, and that would be the icing on the cake," he