June 24, 2024

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Rising inflation in March did not deter consumers, who continued to shop at a faster pace than expected, the Commerce Department reported on Monday.

Data showed that retail sales grew 0.7% this month, which, although lower than the upwardly revised 0.9% in February, was still significantly higher than the 0.3% growth rate forecast by Dow Jones. Census Bureau data This data is adjusted for seasonality but not inflation.

Data released by the Labor Department last week showed that the consumer price index rose 0.4% in March, and the data was also higher than Wall Street’s expectations. That means consumers have been able to keep pace with inflation, which stood at 3.5% this month, below retail sales growth of 4%.

Excluding auto-related revenue, retail sales rose 1.1%, also well above expectations for 0.5% growth. The core control group, which strips out many volatility measures and is included in the formula for determining gross domestic product, also grew 1.1%

Rising gasoline prices drove up overall retail sales, with sales at gas stations growing 2.1% from the previous quarter. However, the biggest growth areas this month were online sales, up 2.7%, and miscellaneous retailers, up 2.1%.

Sales did decline in several categories: Sporting goods, hobbies, musical instruments and books were down 1.8%, clothing stores were down 1.6%, and electronics and appliances were down 1.2%.

Stock futures rose after the report, while bond yields also moved sharply higher. Wall Street opened with a positive outlook despite rising tensions in the Middle East over the weekend over Iran’s air strikes on Israel.

“Strong sales growth in March rescued an otherwise lackluster quarter for retailers,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “First-quarter growth won’t bring a round of high-fives, but it will. Ending the quarter on a strong note should give them some relief and a glimmer of hope that this momentum can continue into the coming months.”

Resilient consumer spending has helped keep the economy afloat despite rising interest rates and concerns about stubborn inflation. Consumer spending accounts for nearly 70% of U.S. economic output and is therefore critical to continued growth in gross domestic product.

Monday’s data comes as concerns over the path of monetary policy intensify. Federal Reserve officials expressed caution about cutting interest rates amid persistent inflationary pressures, forcing investors to lower their expectations for policy easing this year.

Andrew Hunter, deputy chief U.S. economist at Capital Economics, said strong consumer spending could cause the Federal Reserve to delay cutting interest rates.

“In addition to the recent recovery in job growth, the continued resilience of consumption is another reason to suspect the Fed will wait longer before starting to cut interest rates, which we now believe will happen,” Hunter said in a note after the meeting. That won’t happen until September.

The market has been volatile over the past few weeks, also pointing to the first rate cut in September, according to CME Group’s FedWatch futures price gauge.

In other economic news Monday, the Empire State Manufacturing Index, which measures activity in the New York area, rose in April from a month earlier but remained in contraction territory. The index hit -14.3, better than March’s -20.9 but below the -10 forecast by the Dow Jones.

The index measures the percentage of companies reporting expansion versus contraction, so anything below zero represents contraction. Shipment volume and delivery time readings fell, while prices paid rose.

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