U.S. retail sales increased by the most in more than two years in March as households stepped up purchases of motor vehicles and a range of other goods to avoid higher prices from tariffs, likely barely keeping the economy afloat in the first quarter.
With the stock market selling off and consumer sentiment tanking amid a darkening economic outlook wrought by President Donald Trump's tariff campaign, the robust sales pace reported by the Commerce Department on Wednesday will probably fizzle in the months ahead as consumers hunker down.
"While we are likely to avoid a negative first-quarter gross domestic product print, it will only just scrape above zero and the potential rebound in the second quarter is unlikely to be huge given tariffs are soon going to be noticed at a time when consumer confidence is under pressure," said James Knightley, chief international economist at ING.
Retail sales increased 1.4% last month, the largest gain since January 2023, after an unrevised 0.2% rise in February, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, accelerating 1.3%.
Sales soared 4.6% year-on-year in March. Trump's 25% global car and truck tariffs came into effect in early April, with industry analysts and manufacturers warning that the duties would significantly raise motor vehicle prices.
Motor vehicle manufacturers reported a big jump in auto sales in March, attributed by some to a rush by buyers "to try and beat the tariffs." A slew of other duties have been imposed on most goods, resulting in a stampede by consumers to stock up.
Receipts at auto dealerships accelerated 5.3% after declining 1.6% in February. Sales at building material and garden equipment suppliers shot up 3.3%. Sporting goods, hobby, musical instrument and bookstore sales rose 2.4%.
Receipts at food services and drinking places, the only services component in the report, rebounded 1.8% after declining 0.8% in February. Economists view dining out as a key indicator of household finances. Bank credit and debit card data suggest spending continues to be driven by high-income households with low-income consumers struggling.
The stock market sell-off as the import duties stoke fears of inflation and stagnation in economic growth or even a recession raises the risk that high-income households could start retrenching if the values of their investment portfolios continue to shrink.
The dollar slipped against a basket of currencies. U.S. Treasury yields were little changed.
BROAD GAINS
"Notwithstanding plunging consumer confidence gauges, the robust performance at restaurants suggests that households were still in a spending mood, at least before Liberation Day," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, referring to Trump's name for the day he imposed stiff tariffs in early April.
Clothing store sales rose 0.4% while those at electronic retailers increased 0.8%. But receipts at furniture outlets dropped 0.7%. Online store sales edged up 0.1%.
Retail sales excluding automobiles, gasoline, building materials and food services rose 0.4% in March after an upwardly revised 1.3% advance in February. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
Economists had forecast core retail sales rising 0.6% after a previously reported 1.0% jump in February.
Despite the strength in core retail sales in the last two months, economists expect consumer spending slowed to about a 1% annualized rate in the first quarter because of sluggish outlays on services. Consumer spending, which accounts for more than two-thirds of the economy, grew at a 4.0% pace in the October-December quarter.
Economic growth estimates for the first quarter are mostly below a 0.5% rate. The Atlanta Federal Reserve is currently forecasting GDP contracting at a 0.3% pace after adjusting for imports and exports of gold. The economy grew at a 2.4% pace in the fourth quarter.
