Washington
CNN
—
Spending at US retailers skyrocketed last month at the strongest monthly pace in more than two years as Americans rushed to beat President Donald Trump’s massive tariff hikes.
Retail sales climbed 1.4% in March from the prior month, the Commerce Department said Wednesday, up from February’s 0.2% gain and the highest monthly gain since January 2023. The figures are adjusted for seasonal swings but not inflation.
The strong showing in March was largely driven by sales of cars and auto parts. Excluding those purchases, retail sales were up a more modest 0.5%.
Trump’s erratic trade war has unsettled Americans in recent months, stoking fears of inflation picking up in the year ahead, according to various sentiment surveys. That expectation is now clearly having an effect on people’s purchasing behavior.
Americans’ spending frenzy could stretch into April, but will eventually fade, economists say. These brief buying sprints make it difficult for Wall Street and the Federal Reserve to understand the true strength of consumer spending, which powers about 70% of the US economy.
“In the near term, we could have some really strong consumer spending numbers, but that just makes things a little bit tricky for the Fed,” James Knightley, chief international economist at ING, told CNN. “That means that the Fed just sits and waits to see what happens,” referring to the central bank’s upcoming interest rate decisions.
Retail sales in March were up across most categories, especially for car dealerships and home improvement stores.
Spending on motor vehicles and parts was up a whopping 5.3% in March from February, the strongest monthly pace since January 2023. Meanwhile, sales at home improvement stores rose 3.3% during the same period.
Retail sales declined at furniture shops (-0.7%), department stores (-0.3) and gas stations (-2.5). Since the Commerce Department’s figures aren’t adjusted for inflation, the March decline in sales at gas stations could reflect falling gas prices.
“Consumers are expecting sharply higher prices the next year and are clearing the store shelves and picking up bargains while they can,” Christopher Rupkey, chief economist at FwdBonds, said in commentary issued Wednesday.
Americans continued to eat out at restaurants and bars in March, with sales rising a robust 1.8% in March from the prior month. From a year earlier, those sales were up 4.8%.
“The increase in bar and restaurant sales shows that consumers were more likely to spend on this discretionary experience,” Ted Rossman, senior industry analyst at Bankrate, wrote in an analyst note Wednesday.
“We had been seeing waning momentum in this sector as the post-pandemic sugar high wore off and household budgets became constrained by higher prices and higher interest rates, but perhaps things aren’t as dour as the consumer sentiment figures would lead you to believe,” he added.
While retail spending was up sharply in March, Americans’ attitudes toward the economy have been down in the dumps due to the Trump’s administration’s whipsawing trade policy, according to the University of Michigan’s latest consumer sentiment survey, among other surveys. Fed officials have taken notice of America’s souring economic mood, but the central bank is specifically tasked by Congress to help drive employment and stable prices. And it is unclear how souring consumer sentiment will translate into spending, and then eventually into both hiring and prices.
But Trump’s tariff are widely expected to cause both inflation and unemployment to ratchet higher, putting the economy on a path toward “stagflation” — a scenario of stagnant or negative growth and rising unemployment coupled with accelerating prices.
“A tariff is like a negative supply shock. That’s a stagflationary shock, which is to say it makes both sides of the Fed’s dual mandate worse at the same time,” Chicago Fed President Austan Goolsbee said last week at an event in New York. “Prices are going up while jobs are being lost and growth is coming down, and there is not a generic playbook for how the central bank should respond to a stagflationary shock.”
So far, Trump has imposed 25% tariffs on aluminum and steel; 25% tariffs on goods from Mexico and Canada that aren’t compliant with a free-trade agreement among the countries; a massive 145% duty on Chinese imports; a 25% tariff on cars, with separate tariffs on auto parts coming at a later date; and a 10% baseline tariffs on all US imports.
A massive tariff hike on dozens of countries briefly went into effect on April 9, though Trump swiftly delayed the tariff hike that same day until July. He also introduced temporary exemptions for some electronic goods, and he has said separate tariffs are likely coming down the pike on semiconductors, pharmaceuticals, copper and timber.
