Retail sales rebound as consumer spending looks to ramp back up

Retail activity bounced back in March, reversing the decline in sales seen over the previous three months as consumers began to take advantage of tax cuts and resumed solid spending.

 Retail growth rebounded in March
Retail growth rebounded in March

The Census Bureau reported this morning that total retail sales jumped 0.6% in March from February’s levels after experiencing month-to-month declines in each of the previous three months. This beat consensus expectations for a 0.4% gain and put sales 4.1% higher than at this point last year.

Much of the gain during the month was driven by a whopping 2.0% gain in motor vehicle sales, providing some relief to the auto industry after weakness over the past two quarters. Other big ticket items such as furniture and appliances saw big gains during the month, in a sign that consumers are putting their tax refunds to use. This is good news for LTL, trucking, and intermodal markets as the sales and inventory movements of these goods often involve these modes of transport. Nonstore retailers (mostly online) also posted strong growth for the second straight month, in a sign that the demand for last-mile delivery services continues to expand

All was not well in this morning’s report, however, as several major industry sectors saw big declines during the month. Of the 13 major industries within retail, 5 registered monthly declines, with particularly large drops in clothing, sporting goods, and building material stores.  

Post-hurricane season pullback fading

Still, the rebound in sales activity is certainly an encouraging sign for a sector of the economy that saw activity stall since November of last year. Sales growth surged in September and October as spending picked up in the immediate aftermath of Hurricanes Harvey and Irma, in part driven by replacement purchases for property destroyed by the storms.

 Monthly declines from December through February were likely payback from post-hurricane spending
Monthly declines from December through February were likely payback from post-hurricane spending

Because of this, some pullback in activity was expected over the past few months. Challenging weather conditions in January and February likely also played a role in some of the retail weakness at the start of the year as some consumers were kept from stores.

The good news is that this lull in activity appears to be behind the economy, and solid growth should resume throughout the remainder of the year. Consumers still find themselves in a favorable environment, with generally healthy labor market conditions, rising wages, and the recent tax cut helping to boost consumer sentiment. As long as this backdrop exists, the retail sector should be fine    

Behind the Numbers:

Overall, this was a largely expected solid retail report. Nearly everything in consumer fundamentals suggests that consumer spending should be growing going forward, and  another month of weak results would have created quite a puzzle as to what was wrong with the US consumer.

From a freight perspective, this entire episode of weakened activity followed by a bounceback in March can be seen as just a correction after some volatility. The hurricane season wreaked havoc on freight markets and the economy overall and the response in subsequent months introduced quite a bit of volatility. Hopefully the economy will be a bit more stable in upcoming months.

 Ibrahiim Bayaan is FreightWaves’ Chief Economist. He writes regularly on all aspects of the economy and provides context with original research and analytics on freight market trends. Never miss his commentary by subscribing.

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Ibrahiim Bayaan, Chief Economist & Market Expert

Ibrahiim covers developments and trends in the global economy. His focus is on understanding the links between movements in the macroeconomy and the implications for freight markets. Ibrahiim is also a one of FreightWaves’ Market Experts. Prior to FreightWaves, Ibrahiim spent nearly a decade building up the forecasting capabilities and creating the economic messaging at UPS. Ibrahiim and his family live in Atlanta, Georgia.