Retail Sales slip again in March after unusually strong start to year

Summary

Retail sales continued to reverse in March after a temporary surge to start the year. But the level of spending remains elevated and demonstrates there remains an underlying resilience among consumers.

January surge was temporary, spending gradually losing momentum

Consumer spending lost momentum over the course of the first quarter with retail sales falling for a second straight month down 1.0% in March. But even with some payback after an unusually strong start to the year, the level of retail spend is still nearly 2% ahead of where it was in December (chart). More plainly, consumers continue to spend at an elevated level, though the momentum appears to be downshifting.

The main drivers of weakness continue to be retail categories that saw a large run up in spending throughout the pandemic and an unusually strong January surge in sales, like electronics (down 2.1% in March), clothing (-1.7%), autos (-1.6%) and furniture (-1.2%) (chart). Sales at gasoline stations were also weak, slipping 5.5%, and the level of gasoline sales is now more than 10% below where it was six months ago.

In cutting through some of the monthly volatility, control group sales slipped 0.3%. This measure excludes food services, building materials, gasoline and auto dealers from its calculation and is used by the BEA in estimating real personal consumption expenditures (PCE) in its GDP accounting. We estimate inflation-adjusted control group sales rose at a 6.2% average annualized rate the past three months, roughly consistent with our underlying expectations in our latest forecast that overall real PCE rose around a 4.4% annualized pace during the first quarter.

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