American consumers stepped up spending on electronics, clothes and a host of other items in March, a sign that high gasoline prices have done little to diminish their willingness to shop.
Retail sales increased 0.8% in March, after a 1% gain in February, the government said Monday. Within the retail report, a closely watched measure that strips out volatile gasoline, autos and building materials also advanced, rising 0.4% over the month after a 0.5% gain in February.
Consumers are the engine of the U.S. economy, accounting for about 70% of economic demand, but have been under pressure from a combination of weak income growth and rising costs for staples such as gasoline. Despite steady improvement in the job market, the unemployment rate remains elevated at 8.2%.
Monday's report suggests that, so far, households largely have been unfazed by higher gas prices. Meantime, job growth this year appears to be translating into better retail sales. Stores selling a host of nonessential items including electronics, furniture and sporting goods all posted strong gains in March.
"There doesn't seem to be any evidence that households are reacting in a knee-jerk manner" to high gas prices, said Ellen Zentner, an economist at Nomura Securities.
Part of the strength is due to an unseasonably warm winter and early spring that has boosted spending, which economists warn could be paid back in the form of more sluggish sales in later spring or summer. For instance, the building-materials category jumped 3% in March, as good weather spurred consumers to launch renovations or yard work that they normally would start later in the year.
"The question is the sustainability" of sales growth, wrote David Greenlaw, an economist at Morgan Stanley.
At Fifty/50, a restaurant and sports bar in Chicago's Wicker Park neighborhood, the sidewalk patio opened in mid-March this year, compared with May in a typical year. The restaurant has 70 outdoor seats, compared with 120 inside, and the increase in outdoor business was enough to propel sales to about 60% above last March's tally.
"To have that happen in March every employee that could was working overtime," said Greg Mohr, a co-owner of The Fifty/50 Restaurant Group, which is based in Chicago.
The retail-sales figures are the latest in a string of recent economic reports that have come in better than expected, prompting economists to revise up their estimates for growth in the first-quarter's gross domestic product.
Forecasting firm IHS Global Insight, for instance, is now projecting GDP growth at an annual rate of about 2.8% in the first quarter compared with their projection of 1.9% growth in forecasts made earlier in the year.
A separate report Monday showed that businesses continued to build inventories in February, a factor that also is likely to contribute to first-quarter growth. Business inventories increased 0.6% in February compared with 0.8% growth in January.
Inventory growth gave a significant boost to GDP during the fourth quarter of 2011, leading some economists to forecast that companies would start to draw down their stocks in the first quarter of this year.
But it appears that in the first quarter, inventories are likely to have been a more modest—but still positive—contributor to growth, according to Conrad DeQuadros, an economist at RDQ Economics.
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