U.S. retail sales soar in March; stage is set for further gains

U.S. retail sales soar in March; stage is set for further gains

*Rebounding from February’s weather-hampered 3.0% decline and fueled by a reopening of activities in select states, retail sales surged 9.8% in March. Retail sales are now a whopping 17% higher than their pre-pandemic level (Chart 1). We project continued rapid gains in the coming months as more activities return to normal as people spend their extra savings accumulated during the pandemic and rapid job gains support disposable income.

*The retail sales control group—which excludes sales of automobiles, building supplies, and gas stations and is calculated directly in GDP—rose 6.9% in March (following a decline of 3.5% in February), lifting it 9.8% above its Q4 average (Chart 2). This is consistent with our forecast for strong consumption in Q1 and, importantly, it raises the starting point for Q2 significantly and is in line with our projection of robust growth in consumption and GDP in Q2.

*All sectors of retail participated in the surge in spending. Sales of motor vehicles and parts dealers surged 15.1% while non-auto sales rose 7.8% (Chart 3). Motor vehicle sales are constrained by supply chain bottlenecks (semi-conductors) that have reduced inventories. Monthly sales changes among large components were: furniture and home furnishings stores, +7.8%; electronics and appliance stores, +10.5%; building materials and gardening supplies sales, +12.1%; food and beverage stores (grocery stores) for home consumption, +0.7%; food services and drinking places, +13.4%; health and personal care stores, +5.7%; and sports and hobby stores, +23.5%. Sales at general merchandise stores rose 9.1%.

*The confluence of many sectors of the economy getting back to normal, pent-up demand and historically high personal savings, the government’s overly generous income transfers, and the rapid recovery in jobs lost during the pandemic and government shutdowns is expected to fuel robust gains in consumer spending in the coming months. The critical question—whether the surge in consumer spending will be followed by continued strength in aggregate demand or a retreat to modest gains—will be answered in the second half of the year (we expect positively), but for now the trajectory is up sharply.

Chart 1. Retail Sales

Chart 2. Retail sales control group (ex autos, building materials and gasoline)

Chart 3. Retail sales of motor vehicles and parts (blue); Total sales ex autos (red)

Mickey Levy, mickey.levy@berenberg-us.com

Member FINRA & SIPC
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