Retail: Further Strength Likely After March Surge

Expect retail sales to continue growing strongly in April and May, after a 9.8% rise in March. March showed that consumers are ready and willing to spend when restrictions such as restaurant capacity limits are relaxed. The $1,400 per-person stimulus checks and the usual tax refunds helped, too, as well as better weather. All this consumer spending is likely to boost yearly GDP growth estimates to 7% or more.

All sales categories are benefiting from the surge, and have surpassed prepandemic spending levels, with the exception of restaurants and department stores. The strongest-growing sectors over the past 14 months have been sporting goods stores, e-commerce and motor vehicles. Restaurant sales will likely show the strongest growth over the next several months as more restrictions are lifted. Spending on meals out and on services will likely depend on progress in vaccinations. Nearly 50% of adults have already been vaccinated, though the recent pause in administering Johnson & Johnson vaccines could be a concern.

Spending should continue to show strength during the rest of the year, as high savings and growing employment income take over from the initial burst of spending fueled by stimulus checks. Also, federal aid to state and local governments will reinstate more of these lost jobs, leading to more spending by rehired workers. Finally, enhanced unemployment benefits to a sizable group of laid off workers are scheduled to continue until September 6.