WASHINGTON: US retail sales increased more than expected in March amid a surge in receipts at online retailers, further evidence that the economy ended the first quarter on solid ground.
The report from the Commerce Department on Monday, which followed news this month of robust employment gains in March and a pick-up in consumer inflation, bolstered expectations that the Federal Reserve could delay cutting interest rates until September.
It prompted economists at Morgan Stanley to raise their gross domestic product (GDP) growth estimate for the first quarter to a 2.7% annualized rate from a 2.4% pace. The economy grew at a 3.4% rate in the fourth quarter.
“The continued resilience of consumption is another reason to suspect the Fed will wait longer before starting to cut interest rates, which now we think won’t happen until September,” said Andrew Hunter, deputy chief US economist at Capital Economics.
Retail sales rose 0.7% last month, the Commerce Department’s Census Bureau said. Data for February was revised higher to show sales rebounding 0.9% instead of the previously reported 0.6%.
Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, would rise 0.3% in March. Sales jumped 4.0% on a year-on-year basis in March.
Despite higher inflation and borrowing costs, spending is continuing to hold up, confounding predictions of distress among lower-income households, thanks to the resilient labor market.
The latest Bank of America credit card data showed lower-income spending continues to outpace higher-income spending.
“An important reason is that, although lower-income consumers have been disproportionately affected by inflation, they have also been the biggest beneficiaries of the robust labor market,” economists at Bank of America Securities wrote in a note. “Lower-income workers have seen the largest cumulative wage gains since the start of the pandemic.”
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