March US retail sales rose a strong 4.2 per cent, swiftly putting February’s slump in the rearview and proving it was a blip, not a trend.
Removing the impact of inflation, in volume terms, retail sales increased by 2.1 per cent. Core sales, which strip out gasoline, foodservice, and autos, were also up, with an increase of 3.4 per cent, or by 1.5 per cent in volume terms.
While the figures will come as a relief to a retail sector that has recently been battered by a welter of bad news and disruption, we caution that the rates of growth this month are not necessarily representative of what the balance of the year may produce. One reason is that some of the growth is driven by consumers pulling forward some purchases because of tariff concerns. This is particularly evident in bigger ticket sectors, like furnishings and electronics.
From what we can currently discern from our consumer data, we think pulled-forward purchases contributed 0.4 percentage points to core retail growth. This leaves underlying growth at around 3 per cent, which is respectable but more modest than the kind of uplift retail produced last year. This is aligned with our general view of a slight slowdown across the sector.
The other factor helping the March numbers is a relatively weak comparative from the prior year, coupled with an elevated level of tax refunds across March, which allowed consumers to loosen the purse strings somewhat. As neither of these factors carries through across the balance of the year, the growth numbers are likely to tighten in some of the months ahead.
In terms of the wider outlook, there is a great deal of uncertainty that is driven mostly by tariffs. This takes on two forms. First, the impact on consumer sentiment, which is, regardless of the actual shape of the tariff policy, mostly negative. Second, the impact on the economics of retail is harder to predict due to the state of flux over tariff rates and their application.
On the former, our general view is that poor sentiment will take the edge off retail growth, and we are already seeing this in terms of consumers putting more consideration into what they buy and how much they spend. However, until tariffs have a tangible impact on prices, the effect will remain somewhat muted. In terms of economics, there is little doubt that tariffs will be inflationary. Paradoxically, this may actually make retail sales numbers look stronger as it will push up growth, but it will be deleterious to underlying volumes as consumers do not have the capacity to cope with further substantial price hikes.
Moving back to this month, almost all retail segments were in growth. Furnishings stores saw a sales rise of 6 per cent. Some of this is due to demand being pulled forward, but some is also a consequence of a bit more moving activity at the end of last year. Electronics stores posted a 1.5 per cent increase; again, there was a boost of consumers trying to make critical purchases like new appliances before predicted price increases hit. However, more discretionary electronics remain weaker.
At apparel stores, sales increased by 1.8 per cent. The onset of warmer weather and some strong spring and early summer collections coming into stores helped to boost interest and drive spending. Although, from the levels of discounting, it is also evident that the consumer needs to be nudged into making purchases. Meanwhile, at food stores, sales rose by 0.6 per cent, which was mostly due to inflation. Consumers continue to be frugal in their grocery shopping as they look to keep household budgets balanced.
As we move into April, retail is in a solid enough place. However, it is currently standing on the edge of a lot of uncertainty.
