Consumers Bounce Back

Retail sales increased a more-than-expected 0.6% in March, aided by a jump in big-ticket spending. Vehicles sales alone surged 2% in March. Furniture and appliance sales posted strong gains after weakness earlier in the year. This is an area we expect to benefit from a pickup in home remodeling. Many homeowners who cannot afford to trade up are adding onto their homes instead. The biggest hurdle is the shortage of contractors combined with really bad spring weather for construction.

Indeed, spending at building material stores softened in March as the usual push to clean up lawns and get ready for new plantings was delayed. I know; I have a project that has been delayed for over six weeks because of the unusually harsh weather this year.

Green Bay, Wisconsin saw record snowfall over the weekend, another indicator that some of the uptick in gardening and construction activity we usually see will be delayed. Tomorrow’s housing starts data are likely to be suppressed in response to weather-related delays. The retail sales data reassure us that weather, rather than underlying demand, is the larger issue.

Spending on health and personal care remained strong. The extension of a worse-than-usual flu and cold season likely boosted those figures. Spending on clothing slackened as people delayed purchases of spring clothing. Department stores continued to lose ground to online retailers. Weather disruptions tend to exacerbate the move from in-store to online shopping. The Big-box discounters were the exception; they have shored up their online presence and in-store returns to compete more aggressively.

Consumers continued to spend on restaurants and bars, which suggests they are still feeling flush. We expect to see discretionary spending pick up as wages gain more traction when we move into spring.

Bottom Line
Consumers took a breather at the start of the year after a blowout holiday season. They are getting their mojo back and will be a major contributor to gains as we move into the second quarter.

About the author
Diane Swonk Diane Swonk
Chief economist
Twitter: @DianeSwonk

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