Despite rising gas prices, retail sales in the U.S. rose 0.8 percent in March, proof that consumers are still filling up their tanks, according to economists. The rise in purchases follows a 1.1 percent increased in February that was the biggest in five months, according to a survey of 71 economists. The gain sent retail sales to a record high of $411.1 billion, 24 percent higher than the recession low hit in March 2009. “Retail sales are going to end the quarter on a positive note,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. “Underlying job growth is decent.”
Sales may have been helped by the unusually warm weather. The average temperature was 51.1 degrees Fahrenheit, the warmest on record for the month in the past 117 years, according to the National Oceanic and Atmospheric Administration. The economy expanded “at a modest to moderate pace” from mid-February through late March as manufacturing, hiring and retail sales strengthened, according to the Federal Reserve’s latest Beige Book report. The central bank is maintaining its benchmark interest rate near zero until late 2014 to encourage economic expansion.
Americans spent more on building materials, cars, electronics, furniture and clothing in March. A separate Department of Commerce report showed that American companies restocked at a steady pace in February, which suggests that businesses expect consumers to continue spending this spring. The retail sales report is the government’s initial monthly look at consumer spending, which represents 70 percent of economic activity. The increase, along with other positive data on inventories and trade, suggests growth in the January-March quarter could be stronger than first thought. Economists are estimating growth at an annual rate of between 2.5 percent and three percent in the 1st quarter, which is in line with the annual pace reported for the October-December quarter. Americans are feeling greater confidence in the economy after seeing hiring strengthen over the winter. Job gains were typically 246,000 per month from December through February.
In terms of cars, “The industry and consumers have been very resilient in the face of higher pump prices,” Don Johnson, vice president of U.S. sales at General Motors, said. “The steadily improving economy is playing a role and so is pent-up demand and an improved credit market.”
Corporate stockpiles rose a seasonally adjusted 0.6 percent, according to the Commerce Department. That’s less than January’s upwardly revised gain of 0.8 percent. The increase pushed stockpiles to $1.58 trillion which is nearly 20 percent more than the recent low hit in September 2009, just after the recession ended. Sales grew faster than inventories in February, rising 0.7 percent. This is a good sign because it is evidence that companies aren’t building too much inventory, which can result in cutbacks in production in the future.
“The pace of inventory building is consistent with what you’d expect to see in a gradual expansion,” said Tim Quinlan, an economist at Wells Fargo. Businesses are rebuilding their stockpiles after cutting them over the summer in fear of a double-dip recession. Steady inventory growth in the 1st quarter, as well as a narrower trade deficit in February and stronger retail sales, has lifted the outlook for growth.
American households “have the income to propel their purchases now that we’re seeing job growth,” said Russell Price, senior economist at Ameriprise Financial Inc., the third- best forecaster of retail sales for the 24 months ended in March. “They have adjusted to the higher price of fuel. The economy now needs to build on its own momentum.”