Hey, big spenders

Concerns about consumer views of the economy relaxed a bit following release of the March retail sales report. Either consumers feel good enough to increase spending, or they feel awful, but need shopping therapy to make them feel better. Either way, they spent more than expected in March, even as sales in January and February were revised higher. Though vehicle sales declined and gasoline sales increased due to higher prices, e-commerce and general merchandise sales rose solidly. 

Continued solid spending should bolster first quarter economic growth, which some estimates in the 2.5-3% range. Manufacturing production in March rose 0.5%, above expectations, and February’s gain was revised higher. A key part of this increase was higher production of business equipment, which implies optimism about further manufacturing gains. Helped by still-low weekly jobless claims, which came in below estimates, at 212,000, unchanged from last week, consumers feel confident enough to continue spending. Though the personal savings rate has declined over the last year, from 5.2% to 3.6%, consumers do not yet show concern.

Probably more important than the economic data were Federal Reserve Chair Powell’s comments during the week. He indicated that there has been a lack of further progress in getting inflation back to 2% so far this year. Though the labor market is moving into better balance, it may take more time to gain confidence on inflation’s move to 2%. For now, the Fed has the luxury of waiting before acting, because the economy continues to perform well in spite of relatively higher rates.