Stimulus Matters Pt. 2: Retail Sales Surge in March

Economic Blog Posted by lplresearch

Thursday, April 15, 2021

It has been a volatile year in 2021 for the retail industry, but improving COVID-19 trends and fiscal stimulus have improved the outlook. Weather-related disruptions and a high January watermark led to a soft patch in February, but retail sales rebounded in a big fashion in March, rising 9.8% month over month, the highest since May 2020, as vaccination rates have improved, consumers received additional direct stimulus payments, and more of the economy opened up.

The goal of fiscal stimulus during the COVID-19 pandemic has primarily been to bridge the gap for the economy until we were able to get the virus under control, and the surge in retail activity in March is a direct reflection of that:

View enlarged chart.

The $1.9 trillion aid package passed in February issued payments that were two and a half times bigger than those in January, so it may not be as much of a surprise that retail sales growth outpaced Bloomberg consensus forecasts in March. Further, payments were made from mid-March onward, so there may be additional fuel left in the tank for April. As several states expand their reopening plans against the backdrop of improving COVID-19 trends, we expect the economy will continue to grow.

“Stimulus has clearly mattered for the U.S. economy and has helped put us at the front of the pack in the recovery,” added LPL Chief Market Strategist Ryan Detrick. “We’re averaging around 3 million vaccine doses administered per day, and this has fast-tracked our emergence from the shadow of the pandemic.”

Looking under the hood of the March retail sales data, spending on clothing has returned to pre-pandemic levels—perhaps gearing up for a return to the office or summer activities—while spending on eating and drinking categories rose 13% month over month as dining restrictions have been lifted.

We still think it’s too early to sound the “all clear” for the U.S. economy, but it appears we have avoided the soft-patch that many expected in the first quarter, and more pent-up demand should be unleashed as COVID-19 trends continue to improve. In our Weekly Market Commentary on April 5we upgraded our growth forecasts for the U.S. economy from 5–5.5% to 6.25–6.75% in anticipation of the full reopening of the economy over the next several months, and we believe the March retail sales print further justifies our view.


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