US retail sales spring back 0.9% in March. Is the economy back on track?

After starting out the year pinching pennies, Americans finally increased their spending again in March as the weather warmed up.

Retail sales in the US increased 0.9 percent in March, according to data released Tuesday by the Commerce Department. That was slightly below analysts’ expectations of a 1.1 percent increase but still a vast improvement after three straight months of sales declines. Additionally, sales totals for January and February were revised upward, to 0.8 percent and 0.5 percent declines, respectively.

“A rebound in retail sales in March provides evidence that the US economy is pulling out of a soft patch seen at the start of the year,” Markit economist Chris Williamson wrote in an e-mail. “The data also support evidence which indicate that the slowdown seen in the opening months of 2015 is likely to have been temporary and that, after a weak first quarter, growth looks set to pick up in the second quarter.”

Excluding the effects of low gas prices, retail sales were up 1 percent. Auto sales surged 2.7 percent in March – their best performance since March 2014. Sales at clothing stores increased by 1.2 percent, and there was a 0.7 percent rise in sales at restaurants.

Overall, It was the biggest increase in retail sales since March 2014, and a welcome reprieve after a spate of sluggish economic data to kick off 2015. Consumer spending, a more expansive measure of Americans’ spending activity, barely budged in February due to stagnant wages, bad weather, and an increase in Americans deciding to save and pay down debts. The housing market has struggled, thanks to bad weather and affordability problems. Even the job market, which has been a stalwart of growth for the economy over the past year, stumbled badly last month.  

That weakness raised questions about the prospect of the Federal Reserve finally raising interest rates, a move most analysts expect in the next five months. The actual timing of a rate hike will depend on whether the March retail sales report is indicative of a larger turnaround in the economy, and analysts will be looking for more hopeful signs in the coming weeks, particularly on the jobs front. 

“With the March jobs report having been a big disappointment, the stakes surrounding the April report (to be released on May 8) are very high,” MFR Inc. economist Joshua Shapiro wrote in an e-mailed report. “Should the soft March result prove to be a harbinger of a sustained period of weaker job growth, that would have important consequences for the near to medium term economic outlook and hence Fed policy."

In the meanwhile, there are more signs that the economy is heading in a better direction. In another report released Tuesday, producer prices rose for the first time in four months, a sign that inflation is starting to stabilize (another criteria for the Fed in deciding to raise rates). Gasoline prices led the charge, bouncing back 7.2 percent from February as they continued to climb back from prices under $2 per gallon in many parts of the country early in the year. Food prices fell 0.8  percent.