Retail Sales: March 2024

Consumers remain in the driver’s seat 

• US retail sales were stronger than expected in March, confirming that persistently high prices are not deterring consumers from spending as they continue to benefit from sturdy job growth and rising real wages. The data beneath the headline print and some upward revisions to the prior months’ figures point to firmer spending momentum at the end of the first quarter. 
   
• Nominal sales rose 0.7% last month as weaker spending on discretionary items such as electronics, clothing and sporting goods was offset by stronger purchases at general merchandise stores and online, and robust sales at gasoline stations amid higher prices at the pump. Excluding autos, retail sales rose a strong 1.1%. 
   
• ‘Control’ retail sales, which feed into the GDP calculation, surprised on the upside with a 1.1% increase – the strongest monthly gain since January 2023 – while the February advance was revised up from a flat reading to a 0.3% advance. On net, the latest figures put consumer spending on track for solid growth of around 2.5% annualized in Q1. 
   
• The resilience of the US consumer continues to power the economy forward, but we continue to expect some moderation in consumer spending this year as cost fatigue and softer labor market conditions curb income growth and constrain households’ spending power. We project that consumer spending will grow around 2.1% this year, following a 2.2% advance in 2023.
   

March was a solid month for retailers overall as retail sales rose a stronger-than-expected 0.7% while the February gain was revised higher to 0.9% from 0.6% previously. Consumers splurged online in March as nonstore sales jumped 2.7%, the strongest increase since January 2022. Sales at general merchandise stores were also strong last month, up 1.1%. Consumers also spent more on building materials, food and at gasoline stations, which saw another robust sales increase of 2.1%, reflecting higher gas prices. Encouragingly, spending at restaurants and bars rose 0.4%, indicating that services spending likely held up well at the end of Q1 as consumers are still favoring spending on experiences.

There were nonetheless a few soft spots in the March report. Purchases of motor vehicles fell 0.7% after a 2.5% surge in February. And consumers spent less on recreational and sporting goods (-1.8%), clothing (-1.6%) and electronics (-1.2%) last month.  

Control retail sales – a key gauge of broader consumer spending trends that strips out the volatile components – soared 1.1%, which represents the largest increase since January 2023. Adjusted for inflation, core sales rose 0.8% after a 0.2% pullback in February. Taken together, the latest data points to stronger spending momentum in the first quarter of the year and a robust carry-over for consumption growth in Q2. Consumer spending is now on track to grow around 2.5% annualized in Q1, compared to 2.2% previously.  

Looking ahead, we continue to expect some moderation in consumer spending on slower employment gains, more moderate wage growth and rising debt servicing burdens, especially for lower-income families. Cost fatigue – reflecting the cumulative 20% increase in average prices since 2019 – will weigh on consumer spending ability and willingness to spend. We project that consumer spending will grow around 2.1% in 2024, following a 2.2% advance in 2023. We expect real GDP growth will drift below trend growth in H2 2024, with real GDP likely to grow 2.4% on average in 2024 following growth of 2.5% in 2023.