US retail sales rose an unexpected 1.7% in March, beating analysts' expectations of 1.4%. The main driver of this surge was a sharp 24.1% increase in retail gasoline prices following the protracted military conflict between the US-Israel and Iran. The increase in global oil prices by more than 30% has forced consumers to spend more on fuel needs.
In addition to the energy factor, sales growth was also supported by the automotive sector and spending driven by tax refunds. Although consumer sentiment plunged to a record low in April, cash flow from IRS tax refunds, which increased by an average of $351 compared to last year, has given a boost to retail activity in other sectors.
However, economists warn that the restrictions at gas stations are starting to have long-term negative effects. The annual cost of gasoline for the average American is expected to increase by $857 this year. This has raised concerns that consumer spending will shift from non-essential items to essential items.
Core retail sales, which more accurately measure consumer spending for GDP purposes, rose 0.7% in March. While the numbers are positive, overall consumer spending growth is expected to slow compared to the fourth quarter of last year. The Atlanta Fed’s GDP model now tracks growth of just 1.3% for the January-March quarter.
The report comes as the Census Bureau finally manages to re-align its data collection after delays caused by last year’s government shutdown. The March data provides a critical look at the resilience of the U.S. economy ahead of the first-quarter GDP report due next week, amid geopolitical uncertainty that continues to weigh on global supply chains.
