U.S. retail sales show surprising resilience

REAL ECONOMY BLOG | April 15, 2024

Authored by RSM US LLP

American consumers are continuing to show remarkable resilience in their spending habits, despite facing higher prices, particularly at the gas pump, according to retail sales data for March released by the Commerce Department on Monday.

The swift recovery in retail sales in March, along with positive adjustments to February’s figures, suggests that the shopping hangover from January was short-lived.

Total retail sales jumped by 0.7% on the month, while February’s number was revised up to 0.9% from 0.6%. That increase came as a surprise as sales of automobiles and parts that account for 19% of all retail sales posted a 0.7% drop.

Given the notable increase in the control group that directly influences gross domestic product calculations, we’re anticipating a significant boost to the GDP figures for the first quarter when it is released on April 25.

The control group had a growth of 3.0% on a three-month annualized basis, mirroring the increase observed in December when GDP growth was recorded at 3.4% and consumer spending at 3.3%.

But there are signs of weakness under the headline numbers. Rising prices for essentials like gasoline and food are nudging consumers to cut back on nonessential purchases, such as electronics, clothes and sports equipment, which fell by 1.2%, 1.6% and 1.8%, respectively.

Gasoline was a driving factors of the gains in sales data, increasing by 2.1%, which mostly came from rising prices not real demand.

With the recent escalation in tensions in the Middle East, and on top of an expected drop in oil supplies, energy prices should stay elevated for quite some time because of increasing uncertainty. This shift from discretionary to nondiscretionary spending is expected to remain a major factor affecting retail sales.