Did the retail consumer come out of hiding in March? Monday report should offer clues
Retail sales have fizzled for three straight months, a slump that economists have blamed on various factors, including delayed tax refunds.
A rebound is expected when the government reports March sales this week, but another disappointing showing will likely raise doubts about this year’s prospects for consumer spending, which is the chief driver of economic growth. Also on tap this week are reports on housing starts and industrial production.
Consumers have not been backing up their bullish outlooks at the cash register. Consumer confidence has hovered near 18-year highs. But retail sales dipped each month from December through February, with economists pointing to rising credit card debt, cold January weather and, most recently, delays in federal tax refunds. Yet by March those refund checks had arrived and consumers also should have become fully aware of some extra money in their paychecks as a result of the federal tax cuts that Congress passed late last year. In other words, there’s not much excuse for another lousy report.
If the divide between Americans’ optimism and spending persists, it “may increase the risk that personal spending does not respond to the recent personal tax cuts as strongly as we expected,” says Nomura economist Lewis Alexander. Economists expect the Commerce Department on Monday to announce a healthy 0.4% increase in retail spending for March and a 0.3% rise in a core measure that excludes volatile categories such as autos and gasoline.
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On Tuesday, Commerce provides the latest reading on another key sector of the economy — home building. Housing starts have been choppy lately and fell 7% in February, largely because of big swings in volatile apartment construction. Groundbreaking on single-family houses has advanced solidly as builders move to respond to low home supplies that have driven up prices, though they’ve been slowed by shortages of workers and lots. Colder weather also may have posed a hurdle in March, Alexander says. All told, economists expect Commerce to report a modest 2.4% rebound in housing starts last month to a seasonally adjusted annual rate of 1.27 million.
Industrial production generally has been posting sturdy gains on the back of a robust global economy and rising oil prices that have boosted drilling activity. And the colder temperatures in March likely spurred more output by utilities, Alexander says. Economists expect the Federal Reserve to record a solid 0.3% increase in industrial production last month, following a strong 1% jump in February.