Retail Sales Rebound, Post Largest Gain in a Year

Shoppers In Midtown East Ahead Of Retail Sales Figures
Craig Warga/Bloomberg via Getty Images
By Lucia Mutikani

WASHINGTON -- U.S. retail sales rose in March for the first time since November as consumers stepped up purchases of automobiles and other goods, suggesting a sharp slowdown in economic growth in the first quarter was temporary.

The Commerce Department's fairly sturdy report Tuesday together with other data showing producer inflation crept up last month should keep the Federal Reserve on track to start raising interest rates later this year.

%VIRTUAL-pullquote-A rebound in retail sales in March provides evidence that the U.S. economy is pulling out of a soft patch seen at the start of the year.%An unusually snowy winter undercut activity early in the year. Labor disruptions at normally busy West Coast ports, a stronger dollar and softer global demand also have hurt growth.

"A rebound in retail sales in March provides evidence that the U.S. economy is pulling out of a soft patch seen at the start of the year. The improvement in retail sales ... adds to the likelihood of policymakers voting to hike rates this year," said Chris Williamson, chief economist at Markit in London.

Retail sales increased 0.9 percent in March. That was the largest gain since the same month last year and snapped three straight months of declines that had been blamed on harsh winter weather.

U.S. stocks were trading lower as unexpectedly strong earnings from banking giants JPMorgan Chase (JPM) and Wells Fargo (WFC) were offset by Johnson & Johnson's announcement that it was cutting its full-year earnings forecast due to the impact of the buoyant dollar.

Prices for U.S. government debt rose, while the dollar was weaker against a basket of currencies.

Retail sales excluding automobiles, gasoline, building materials and food services rose 0.3 percent after dropping 0.2 percent in February.

The so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Economists shrugged of the mild rebound and said it reflected the lingering effects of cold weather.

With savings at their highest level in just over two years, thanks to a tightening labor market and cheaper gasoline, there is great potential for consumers to boost spending in the months ahead and cushion the economy against the strong dollar.

Data on trade, consumer spending, manufacturing and home building have suggested the economy grew at a sub-1.5 percent annual rate in the first quarter.

But economists could raise their estimates in the wake of a second report Tuesday from the Commerce Department, which showed retail inventories excluding automobiles rose 0.5 percent in February after gaining 0.2 percent in the prior month.

Auto Sales Surge

In a separate report, the Labor Department said its producer price index for final demand increased 0.2 percent last month, with rising prices for goods accounting for more than half of the increase. The PPI had declined 0.5 percent in February.

In the 12 months through March, producer prices fell 0.8 percent, the biggest year-on-year decline since the revamped series started in 2009, after sliding 0.6 percent in February.

Low inflation and signs of a sharp slowdown in economic growth in the first quarter have prompted most economists to push back their expectations for the first Fed rate hike to either September or October from June. Others believe the U.S. central bank will only tighten monetary policy in 2016.

The Fed, which has a 2 percent inflation target, has kept its key short-term interest rate near zero since December 2008.

A key measure of underlying producer price pressures that excludes food, energy and trade services rose 0.2 percent after being unchanged in February. Core PPI was up 0.8 percent in the 12 months through March.

Retail sales last month were buoyed by a 2.7 percent rise in automobile sales, the biggest increase since March 2014. Sales at clothing stores increased 1.2 percent.

Receipts at building material and garden equipment stores advanced 2.1 percent, the largest rise since July 2013.

There were also increases in sales at furniture stores, restaurants and bars, and sporting goods and hobby shops. However, sales at electronics and appliance stores slipped as did receipts at online stores.

9 Numbers That'll Tell You How the Economy's Really Doing
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Retail Sales Rebound, Post Largest Gain in a Year
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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