United States retail sales rebounded more than expected in March as Americans received additional pandemic relief cheques from the government and increased COVID-19 vaccinations allowed broader economic re-engagement, cementing expectations for robust growth in the first quarter.
The brightening economic prospects were underscored by other data on Thursday showing first-time claims for unemployment benefits tumbled last week to the lowest level since March 2020, when mandatory closures of non-essential businesses were enforced to slow the spread of the first COVID-19 wave.
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The rapidly improving public health environment and the White House’s $1.9 trillion rescue package are positioning the economy for the fastest growth this year in nearly four decades.
“Consumer spending is leading a strong economic recovery in early 2021,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.
Retail sales increased 9.8 percent last month, the US Department of Commerce said. Data for February was revised higher to show sales dropping 2.7 percent instead of 3.0 percent as previously reported.
The broad-based rebound was led by motor vehicles, with receipts at auto dealerships surging 15.1 percent after falling 3.5 percent in February. Sales at clothing stores soared 18.3 percent.
Consumers also boosted spending at restaurants and bars, leading to a 13.4 percent jump in receipts. Still, sales at restaurants and bars are 1.8 percent lower compared to March 2020.
Receipts at electronics and appliance stores increased 10.5 percent and sales at furniture stores rose 5.9 percent. There were also hefty gains in sales at sporting goods, hobby, musical instrument and book stores. Receipts at food and beverage stores gained 0.7 percent.
Sales at building material stores vaulted 12.1 percent. Online retail sales increased 6.0 percent.
Economists polled by Reuters news agency had forecast retail sales would increase 5.9 percent in March. Many qualified households have received additional $1,400 cheques, which were part of the massive stimulus package approved in early March. The package also extended a government-funded $300 weekly unemployment supplement through September 6.
At the same time, temperatures have warmed up and the public health situation has been rapidly improving, allowing more restaurants to offer dining services.
US stocks opened higher on the data. The dollar was steady against a basket of currencies. US Treasury prices rose.
Excluding automobiles, gasoline, building materials and food services, retail sales rose 6.9 percent last month after a revised 3.4 percent decrease in February. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have declined 3.5 percent in February.
Strengthening domestic demand was underscored by the release of the Federal Reserve’s “Beige Book” report on Wednesday, which described economic activity as having “accelerated to a moderate pace from late February to early April,” and also noted that “consumer spending strengthened”.
Growth estimates for the first quarter are as high as a 9.8 percent annualised rate. The economy grew at a 4.3 percent pace in the fourth quarter. Growth is expected to top 7.0 percent this year, which would be the fastest since 1984. It would follow a 3.5 percent contraction last year, the worst performance in 74 years.
Households have amassed about $19 trillion in excess savings. That, together with a recovering labour market, is expected to underpin consumer spending this year.
In a separate report on Thursday, the US Department of Labor said initial claims for state unemployment benefits dropped 193,000 to a seasonally adjusted 576,000 for the week ended April 10, the lowest level since mid-March 2020. Economists polled by Reuters news agency had forecast 700,000 applications for the latest week.
Despite the big drop, claims remain well above their pre-pandemic level. Part of the elevation in claims is because of fraud. The enhancement of the unemployment benefit programmes, including the weekly subsidy, could also be encouraging some people to file for aid and others not to seek work.
Indeed, the Fed’s Beige Book also noted that “hiring remained a widespread challenge, particularly for low-wage or hourly workers, restraining job growth in some cases”.
Claims have dropped from a record 6.149 million in early April 2020. In a healthy labour market, claims are normally in a range of 200,000 to 250,000.
But the labour market is making progress. Unadjusted claims dropped 152,833 to 612,919 last week.
Including a government-funded programme for the self-employed, gig workers and others who do not qualify for the regular state unemployment insurance programmes, 744,894 people filed claims last week, pushing further below one million.
“Initial claims now appear to finally be on an overall downward trajectory, as the vaccine programme leads to long-overdue improvements in the economy and a decline in layoffs,” said Andrew Stettner, senior fellow at The Century Foundation.
The government reported this month that employers hired 916,000 workers in March, the most in seven months. Still, employment remains 8.4 million jobs below its peak in February 2020.