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Cars drive US retail sales higher in March

Core retail sales rise 0.4%; prices for US Treasuries marginally lower

Gulf News

Washington: US retail sales rebounded in March after three straight monthly declines as households boosted purchases of motor vehicles and other big-ticket items, suggesting consumer spending was heading into the second quarter with some momentum.

The Commerce Department said on Monday retail sales increased 0.6 per cent last month after an unrevised 0.1 per cent dip in February. January data was revised to show sales falling 0.2 per cent instead of the previously reported 0.1 per cent drop.

Economists polled by Reuters had forecast retail sales rising 0.4 per cent in March. Retail sales in March increased 4.5 per cent from a year ago.

“Consumers are doing their part to drive the economy forward as they restart their engines from a cold and snowy winter,” said Chris Rupkey, chief economist at MUFG in New York.

Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.4 per cent last month after being unchanged in February. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

They were previously reported to have risen 0.1 per cent in February. Last month’s pick-up in core retail sales did little to change expectations of a sharp slowdown in consumer spending in the first quarter.

The dollar was trading weaker against a basket of currencies. Prices for US Treasuries were marginally lower while stocks on Wall Street rose.

Economists largely blame the weakness in retail sales at the start of the year on delays in processing tax refunds. Some also argue that income tax cuts, which came into effect in January, only reflected on most workers’ paychecks in late February.

Strong fundamentals

Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a robust 4 per cent annualised rate in the fourth quarter. It is expected to have slowed to below a 1.5 per cent rate of increase in the first quarter.

Growth estimates for the January-March quarter are running below a 2 per cent rate. The economy expanded at a 2.9 per cent pace in the October-December quarter. Growth tends to slow in the first quarter because of a seasonal quirk.

The government will publish its advance estimate for first-quarter GDP growth later this month.

A robust labour market, which is expected to generate stronger wage growth, is expected to underpin consumer spending.

Low household savings, however, remain a constraint.

“The fundamentals are good,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh. “However, the need for households to increase their saving will be a constraint on consumer spending growth in 2018.”

In March, auto sales jumped 2 per cent, the largest increase since last September, after declining 1.3 per cent in February. Receipts at service stations fell 0.3 per cent, reflecting cheaper gasoline.

Sales at furniture stores climbed 0.7 per cent while those at electronics and appliance stores increased 0.5 per cent. But sales at building material stores fell 0.6 per cent last month.

Receipts at clothing stores dropped 0.8 per cent while sales at online retailers increased 0.8 per cent. Sales at restaurants and bars gained 0.4 per cent. Receipts at sporting goods and hobby stores dropped 1.8 per cent.

In a second report on Monday, the Commerce Department said that business inventories rose 0.6 per cent in February after a similar increase in January. February’s increase in inventories, which are a key component of gross domestic product, was in line with economists’ expectations.

Retail inventories excluding autos, which go into the calculation of GDP, rose 0.2 per cent after edging up 0.1 per cent in January. Economists expect inventory investment will contribute to growth in the first quarter after subtracting 0.53 percentage point from GDP growth in the October-December period.