After climbing by a revised 1.1% last month, retail sales ticked higher by a comparatively modest 0.4% in March. Excluding autos, retailers posted a slightly better than expected gain of 0.8% for the month. Nonetheless, most of the monthly increase was attributable to increasing fuel costs, as sales excluding gasoline rose by just 0.1%.
While consumer confidence faltered last month in response to rising energy costs, improvement in the labor market is providing some support to consumers.
Retailers anticipate better results in April as the late Easter holiday is expected to generate greater store traffic.
Rising material costs are becoming more apparent and are beginning to put pressure on retailers. Consumers may be willing to accept some increases in costs, but retailers are being force to strike a delicate balance between passing those costs along and absorbing them at the expense of profitability.
The Fed recently indicated that it expects household spending to increase, but the rate of growth remains a subject of debate. The Fed has indicated that they believe the recent surge in headline inflation driven by rising commodity prices to be temporary. If that is not the case, a sustained increase in energy and food prices would certainly impair consumers’ ability and willingness to spend as freely on other goods and services.
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