On Monday, the United States Census Bureau will release the advance monthly retail sales report, which shows consumer spending on retail trade for the month of March. The median analyst expectation is a 0.4 percent increase in consumer spending, to round out the first quarter after two months of weak retail sales in 2018. Here are five things to watch in the report.
1. Autos and gasoline as a driving force
Autos are a volatile line on the retail sales report, and for the first months of 2018 they have driven the overall number down. But auto sales improved in March and should drive the total retail sales number up.
Gasoline stations sales will also drive the headline retail sales number. Gasoline prices are the highest consumers have seen since they hit a low in 2016.
“Consumers are feeling the pinch from higher prices at the pump,” said Lindsey Piegza, chief economist for Stifel fixed income. But “higher gas prices also boost spending at the pump.”
2. No help from tax cuts or refunds
Analysts say that March is the first full month were consumers saw the full benefit in their paycheck from the Tax Cuts and Jobs Act. But increased take home pay from the tax cuts and from wage gains has not boosted consumer spending so far in 2018.
In addition, the IRS delayed releasing tax refunds for the second year. So, while consumers usually have extra money coming back in February and March, this boost is being pushed back into later months.
“Delayed tax refunds have delayed spending,” said Michael Englund, chief economist for Action Economics, “but I expect it to pick up” in the second quarter.
3. A cautious consumer at the core
Even though wages have gone up, and consumers should be seeing an increase in take home pay, consumer spending has not accelerated in the early months of 2018. Analysts look at the core retail sales number – meaning total retail sales excluding autos, and in some cases, gasoline stations – as a measure of how the consumer is feeling about spending.
Analysts expect a slight increase in the core number, showing that consumers are still spending on discretionary items. But analysts say that consumer confidence is higher than spending is showing.
Even though the economic outlook in 2018 is good for the consumer, it appears that consumers are using their extra income to pay off debt and increase savings; the personal savings rate declined in 2017 but has picked up this year.
“People are usually taking on debt and spending freely, but this time around being more cautious,” said Russel Price, senior economist at Ameriprise.
4. Weather hassle
Spring weather is usually good for retail sales, but it didn’t quite turn into spring in March. There was unseasonably cold weather and a series of significant storms in the Northeast during the month. This could have put a damper on some retail sales line items, especially restaurants and building materials.
We are “not looking for burst of spring activity when people are excited for spring weather,” said Price.
5. Third time’s a trend
After two months of somewhat unexpected weak retail sales numbers, analysts have been quick to say that two months of data is not enough to determine a trend. But after the April report, analysts will have a full quarter of data that shows how consumers are spending in 2018. Analysts expect the April report will show that the consumer has been recovering from strong spending at the end of 2017 and prove that weak retail sales is not a trend that will continue in 2018.
An increase in retail sales will show that the consumer is feeling fine and will set the trajectory for consumer spending in quarter two.
“Overall over the next few months we think the consumer is going to emerge from their first quarter funk,” said Ryan Sweet, director of real-time economics at Moody’s.
