Consumer spending likely picked up in March

By Siyuan Du

Less money spent at the gas pump and bad weather depressed consumer spending at the beginning of the year, but economists say conditions have improved.

Retail sales are expected to increase 1 percent in March, according to Economists surveyed by Bloomberg. If so that would be the first monthly increase since November.

“Car sales improved, and gasoline prices rose. Those will be the primary driving forces to increase retail sales,” said Ward McCarthy, chief financial economist at Jefferies LLC.

Automakers reported 0.6 percent increase of light vehicles sales for March, compared with the previous year. Individual retailers will report their March sales on Thursday, also expected to rise.

“Online retailers were also doing well. The retail sector is generally doing pretty good, and consumer spending continues to be very healthy,” McCarthy said.

Economists and the Federal Reserve pay close attention to consumer spending, which makes up two thirds of the U.S. economy. Employment gains usually mean consumers have more money to spend, which is why Friday’s disappointing jobs report for March raised concerns about future spending.

The U.S. Labor Department reported non-farm payroll employment rose 126,000, about half what was expected. Weather was likely one factor to explain the weak data last month.

“It was a bad winter for much of the country, and like the cold weather, soft economic data lingered into March,” said Kyle Grace, at Comerica Economic Insights.

Sales in U.S. retail and food stores dropped 0.6 percent in February from the previous month, following a 0.8 percent drop in January. It was the first time since 2012 that retail sales had dropped for three consecutive months. Compared with a year earlier, overall February retail sales were up 1.7 percent, which is the slowest gain over a 12-month period since 2009.

February retail sales also suffered from a 23 percent drop in money spent at gas stations because of lower gas prices and were not offset by higher sales elsewhere. But that is expected to change.

“The lower gasoline prices are projected save around $1,000 to $1,500 per family this year compared to last year,” Lawrence Yun, chief economist at the National Association of Realtors, wrote in a March 12 note.

“Given the job gains of recent months and the savings from gas stations, it is inevitable that retail sales will pick up steam,” he added.

The U.S. Census Bureau will release March retail sales on the morning of April 14.

Photo at top: Shoppers on State Street in Chicago. (Siyuan Du/Medill)