March Retail Sales Surge As Long-Cautious Shoppers Splurge

Sales of cars and gasoline helped push up March's retail sales figures, but there are also clear signs that shoppers have begun to spring for nonessentials such as clothes and housewares.

The U.S. Commerce Department's retail and food services sales tally for March rose to $363.2 billion, up 7.6% from March 2009 and 1.6% from this February. Excluding the automotive segment, total sales were up 8.2% year-over-year, and retail sales specifically were up 6.4%. Auto sales were up 14.1% from a year ago.

The favorable report was expected after top retailers last week posted sharp increases in March sales over last year's totals and several used the opportunity to increase their earnings forecasts. The Commerce Department's tally is a more comprehensive measure, since it includes gas, food and auto sales, as well as the results of Wal-Mart Stores (WMT), the world's largest retailer, which doesn't publicly report its monthly sales figures.

Gas stations showed the biggest sales gains, up 26.4% above March 2009, primarily due to the sharp rise in gas prices during the last year. Non-store retailers showed the largest increase among merchants, up 12.1%, thanks to the continued strength of online retail.

Hard Times Starting to Ease for Hardware Stores

But there were some unexpected pockets of strength: Sales at electronics stores were up 3.5% above March 2009, suggesting that the price deflation which has been affecting gadgetry has begun to abate. The sector has also begun feeling the effect of a federal program offering rebates on new, energy-efficient appliances.

And two home-related sectors were up, as well: Home furnishings sales rose 4.2% and more significantly, the hard-hit hardware sector eked out its first annual increase in months, up 0.5% over March 2009. Hardware stores have been pummeled throughout the downturn by the one-two punch combination of the slowdown in construction and homeowners' reluctance to spend on home-improvement projects. Recent earnings reports from the big-box hardware chains hinted that both homeowners and builders may be starting to spend again.

Analysts have been parsing March's results with particular care, attempting to sift out the impact of an early Easter -- which shifted all the sales related to the holiday into the month of March -- to gauge the real shopper mindset. Many experts say it would be best to wait for April's results and average the two months to get a better picture.

"Although the reported sales figures for the full fiscal month of April are likely to be close to flat or off slightly, the two-month performance appears on a 4.0% track -- which is pretty healthy," wrote Michael Niemira, chief economist of the International Council of Shopping Centers, in his report.

Shoppers Beginning to Indulge Their Pent-Up Demand

Experts warned that the retailers which showed the largest sales increases were discounters such as as Kohl's (KSS) and TJX (TJX), a sign that consumers are still focused on value.

But in spite of their caution, experts still say all signs point to a tentative retail recovery. Deloitte Research's monthly Consumer Spending Index -- which gauges the conditions that affect spending habits -- rose in March after declining for two months. The analysts' report noted that while real wages remain low, unemployment rates have begun declining and home price declines have begun to level off, which could spur more spending among shoppers.

Research suggests shoppers have begun indulging their pent-up demand for clothes and housewares after holding back for most of the past year. The monthly ShopperScape survey by consulting form Kantar Retail found fewer shoppers saying they plan to spend less in the next month and more saying they plan to spend the same amount as last year or more. The percentage planning to spend less on clothing for themselves and their kids than last year dropped by 18 and 16 percentage points, respectively, while the number planning to spend more rose by 9 and 12 percentage points.

Analysts at Thompson Reuters noted that the March numbers showed shoppers seem more willing to pay full price for merchandise, a trend that hadn't been seen in more than two years. Also, teen apparel sales rose nearly 10% in March, their third monthly increase in a row after 18 months of drops, which Thomson Reuters pointed to as a sign that spending on non-essentials is on the rise.

"Consumers have shed some of their restraint in recent months, but it appears that a significant amount of pent-up demand may still be waiting to be released," said Deloitte Vice Chairman Stacy Janiak in a statement. "As retailers plan for the critical fall selling season, they may want to consider the potential for a more active consumer."