US retail sales: The Commerce Department reported on Wednesday that consumer spending was stronger than expected in March, as demand remained high despite weakening sentiment.
Preliminary estimates for retail sales showed a 1.4% increase during the month, better than the Dow Jones estimate of 1.2%, and higher than the 0.2% increase in February. The annual increase was 4.6%, according to figures adjusted for seasonal factors rather than prices, while the monthly increase was the largest since January 2023.
Excluding cars, the figures were also stronger than expected, with sales up 0.5% compared to a 0.3% forecast. Economists have predicted a rise in auto sales as buyers seek to preempt President Donald Trump’s tough tariffs.
Automobile and parts dealers reported a 5.3% increase in sales. This reading suggests steady spending despite impending tariff fallout and expectations of a weakening economy.
Markets did not react much to this statement, as stock futures fell slightly, and long-term Treasury yields rose.
The retail report contradicts several recent consumer confidence readings that show widespread fears that Trump’s tariffs could plunge the economy into recession and raise prices. Last week, the University of Michigan’s closely followed consumer confidence survey recorded its second-lowest reading ever, and annual inflation expectations were the highest since 1981.
Besides the significant rise in car sales, sport, hobbies and music stores saw an increase of 2.4%, while building materials and garden stores increased by 3.3%. Food and beverage prices increased by 1.8%, while petrol stations recorded a 2.5% drop as prices fell during the month.
Market reactions: How do financial markets usually react to unexpected changes in retail sales data?
Financial markets often react quickly and significantly to unexpected changes in retail sales data due to their effects on consumer spending and overall economic health. Here are some typical reactions:
1. Stock market movements
Consumer-led stocks: Shares of retail and consumer goods companies may experience immediate price fluctuations. Positive retail sales data can boost stock prices, while negative data may lead to declines.
Market sentiment: Unexpected changes can affect overall market sentiment. Strong retail sales could signal economic growth, leading to a bull market, while weak sales could trigger bearish sentiment.
2. Bond market reactions
Yield changes: Retail sales data can affect bond yields. Strong sales could lead to expectations of higher interest rates, causing bond prices to fall and yields to rise.
Safe-haven assets: Conversely, disappointing retail sales may prompt investors to look for safe-haven assets such as government bonds, pushing prices higher and yields lower..
3. Currency fluctuations
Strength or weakness of the US dollar: Retail sales data can affect the value of the US dollar. Strong sales figures may lead to a stronger dollar value as they indicate strong economic activity, while weak numbers may weaken the dollar.
Market speculation: Traders often speculate on future Fed actions based on retail sales performance, which can lead to currency volatility. Positive retail sales data can boost stock prices, while negative data may lead to declines.
4. Economic Outlook Adjustments
Revision of growth forecasts: Analysts may adjust GDP growth forecasts based on retail sales data. Strong sales can lead to upward revisions, while weak sales may lead to downward adjustments, affecting market perceptions.
Impact of seasonal factors: How do seasonal factors affect US RS data?
Seasonal factors significantly influence retail sales data, influencing consumer behavior and sales performance. Here’s how:
1. Holiday shopping seasons
Increased spending: Holidays such as Christmas, Thanksgiving, and Easter usually see an increase in consumer spending as people buy gifts, decorations, and festive foods. Retailers often rely on this period to get a large portion of their annual sales.
Promotional activities: Many retailers offer special promotions and discounts during the holiday seasons, increasing sales. Events such as Black Friday and Cyber Monday have become major retail landmarks.
2. Shop for Back to School
Seasonal demand: The back-to-school period (late summer) is critical for many retailers, especially those selling clothing, school supplies, and electronics. This seasonal demand can increase sales figures during this time.
Budget trends: Households often budget for back-to-school expenses, which can boost overall retail sales in July and August.
3. Seasonal products
Product variability: Retail sales may fluctuate based on seasonal product availability. For example, winter clothing sales rise in the cooler months, while outdoor furniture and gardening supplies see higher sales in spring and summer.
Inventory management: Retailers adjust inventory and marketing strategies based on seasonal trends to increase sales during peak times.
4. Weather Effects
Weather conditions: Extreme weather conditions can affect retail sales, either positively or negatively. For example, harsh winters may boost winter clothing sales but reduce outdoor entertainment equipment sales.
5. Consumer behavior
Psychological factors: Seasonal factors can change consumer behavior, as people often feel more inclined to spend during festive periods or when they prepare for important life events (such as weddings or holidays).
