March saw a surge in inflation, but that didn’t deter American shoppers, who kept spending at a faster pace than expected. Retail sales, which measure consumer spending, increased by 0.7% in March compared to the previous month. While this growth was slower than February's revised 0.9% increase, it still surpassed economists' projected 0.4% rise.
Various sectors experienced sales boosts in March. Gas stations saw a robust 2.1% increase from February, while online sales spiked by 2.7%. Specialty stores also enjoyed a solid 2.1% sales increase. However, spending at restaurants and bars only rose by 0.4% last month. On the flip side, sales of electronics, clothing, and sporting goods declined by 1.2%, 1.6%, and 1.8%, respectively.
A significant report on the US economy sparked activity in the forex market. The US dollar index climbed early Tuesday, surpassing 106.40 after its gains on Monday.
This report further confirms the strength of the US economy, keeping the Federal Reserve cautious. It suggests that the expected three interest rate cuts might not happen this year, and inflation could persist longer than anticipated. With robust job gains in March and an uptick in consumer inflation, there's speculation that the Fed might delay rate cuts until September. Some economists see the window for lowering rates this year closing. This uncertainty positions the dollar as a safe haven among currencies.
Last week, the greenback had its strongest performance since 2022, due to concerns about inflation and changes in rate expectations. It rose by 1.7% against a basket of six currencies.
Despite higher interest rates and inflation concerns, resilient consumer spending has kept the economy buoyant. Consumer spending drives nearly 70% of US economic output, making it crucial for sustained GDP growth.
Americans have been on a spending spree in recent years, and economists predict this trend will likely continue. As long as the job market remains strong, consumer spending is expected to stay healthy. Currently, the US job market is one of the strongest in history, with job growth occurring for 39 consecutive months, marking the fifth-longest streak on record. Additionally, the unemployment rate has remained below 4% for over a year.
