Retail sales continued to make progress with an increase of 0.5% month-on-month (m/m), just a notch below the consensus estimate for an increase of 0.6%. February’s reading was revised up to 0.8% m/m from 0.3% m/m reported earlier. This makes March’s showing stronger than the headline appears.
Sales at autos & parts dealers declined by 1.9% m/m but February’s estimate was revised up to 1.5% vs. 0.8% reported earlier. The decline affected both auto dealers and automotive parts & tire stores, where sales dropped by 2.1% m/m and 0.3% m/m, respectively. Excluding autos, retail sales were up 1.1% m/m.
With higher prices at the pump, it’s no wonder that sales at gasoline stations were also up by 8.9% m/m. Building materials retailers also saw a gain of 0.5% m/m in March.
Sales in the “control group,”, which exclude the above categories and are used in calculating personal consumption expenditures (and GDP), were down by 0.1% m/m. February’s sales were revised to a stronger -0.9% m/m from the advance reading of -1.2% m/m.
- Within the group, the biggest drag was reported by non-store retailers where sales declined by 6.4%. The only other category in the red was health & personal care stores with a marginal decline in sales of 0.3% m/m.
- The rest of the categories reported gains with department stores (+5.4% m/m) leading the pack, followed by sporting goods, hobby, book & music stores (+3.3% m/m), clothing & accessory stores (+2.6% m/m), and food services & drinking places (+1.0% m/m). . February’s reading for food services & drinking places was revised up from 2.5% to 3.0% m/m.
Key Implications
Three months of advancement bring quarterly growth to a solid +4.2% rate– slightly higher than we penciled in our forecast. Gains were concentrated in “going out” categories – a pattern consistent with a strong reopening, pointing to a potential boost to services spending (not covered in the retail sales report).
If a cure for high prices is high prices, then consumers got their fair share of medicine in March. Our estimate of real retail sales (using the CPI) points to a decrease in real spending of 0.7% month-on-month. Where we could match inflation and sales by category, the greatest price impact was at gas stations where sales declined by 8.0% in real terms, pointing to consumers becoming weary of rising gas prices. The monthly decline of 2.1% in real sales at auto dealers likely reflects the continuous shortage of supply, rather than softness in demand.
Still, demand remains solid enough for the Fed to stop hedging its bets and tighten monetary policy more aggressively in May. From the FOMC meeting minutes released last week, it was clear that some participants preferred a larger hike in March but were deterred by the tightening in financial market conditions. With financial markets more settled and inflation hot, this could be an opportune moment for the Fed to raise the federal funds rate by 50 basis points.
