Consumer spending in the US rose for the second consecutive month in March, indicating the strength of the US consumer due to a strong job market. Retail sales increased by 0.7% in March from the previous month, beating economists’ expectations. This trend marks an increase in retail spending in seven of the last 10 months. Sales rose across various categories in March, including gas stations, online sales, and specialty stores, while sales of electronics, clothing, and sporting goods experienced decreases.
The US economy remains solid as evidenced by the recent report, keeping the Federal Reserve cautious about making any rate cuts. With inflation slightly above target, economic growth continuing to show momentum, and elevated prices in asset markets, the current stance of monetary policy is considered appropriate. Despite inflation showing some signs of stalling in recent months, Fed officials are waiting for clear evidence that inflation is on track to hit their 2% goal before making any policy adjustments.
Interest rates are currently at a 23-year high due to aggressive rate hikes by the Fed in recent years. Analysts have pushed back their estimates on the timing of the first rate cut, with Goldman Sachs forecasting it to be in July instead of June. The Bank of America now sees the first cut occurring in December. Americans have been spending consistently over the past few years, with strong consumer spending contributing significantly to economic growth. The US economy grew at a healthy pace last year, driven by consumer spending, which accounts for two-thirds of economic growth.
Households have maintained strong spending patterns despite high inflation and interest rates, and economists predict spending will continue to be robust this year. The job market plays a crucial role in consumer spending, with employers adding a surprising number of jobs in March. The unemployment rate remains low, and wage growth is outpacing inflation, providing a positive outlook for consumer spending. Consumer spending on goods and services saw a significant increase in February, the strongest monthly gain in over a year.
The US job market is currently one of the strongest in history, with job growth expanding for 39 consecutive months and the unemployment rate remaining below 4% for more than a year. As long as the job market continues to flourish, consumer spending is expected to remain healthy, driving economic growth in the US. The Commerce Department is set to release broader figures on consumer spending for March later this month, providing further insights into the state of the US economy.
