Exceptionally Strong Consumer Spending Growth Throughout 2021

• Retail sales were up 10% from February to March. Stimulus payments, vaccinations, and better weather all contributed to the surge in spending.
• Drivers of consumer spending are extraordinarily strong in early 2021, and growth will remain very high throughout this year and into next.
• Consumer spending growth will shift from goods to services as vaccinations continue and the pandemic fades.

Retail sales jumped 9.8% in March from February, the biggest one-month increase since they surged 18% in May 2020 as stores reopened during the early stages of the pandemic. Other March details were very good. Retail sales excluding autos jumped 8.4%, and sales excluding autos and gasoline jumped 8.2%. Control sales-retail sales excluding food service, autos, gasoline, and building materials, and which go into nominal consumer spending in GDP-were up 6.8% over the month. The February decline in retail sales was revised somewhat to a 2.7% drop, from the initially reported 3.0% decline.

Consumer spending is leading a strong economic recovery in early 2021. With two sets of stimulus payments in the first few months of the year and millions of people receiving vaccinations every day, consumers are spending, particularly on goods. Better weather in March also contributed to the huge increase; winter storms in much of the country in February depressed sales. Growth in retail sales and consumer spending will remain exceptionally strong as vaccinations continue and coronavirus cases eventually decline, states further remove restrictions on economic activity, and households gradually spend the stimulus checks that they have received. Other drivers of growth in consumer spending will be low interest rates, higher household wealth from rising home values and stock prices, and an improving job market. The focus of consumer spending will shift from goods to services, however, as businesses reopen and people feel more comfortable traveling and being in close contact.

Details of March retail sales growth were solid across-the-board. Auto and part sales were up 15% over the month, gasoline sales were up 11% (in part because of higher gasoline prices), and restaurant/bar sales were up more than 14%. Sales at building materials stores, clothing and accessories stores, specialty stores, and electronics and appliances stores all grew at a double-digit pace in March. Sales at general merchandise stores were up 9%, while sales at furniture and home furnishings stores were up 6%. Non-store (primarily online) sales were up 6%, solid but well below the pace in previous months. Sales at food and beverage stores were up less than 1% from February to March as consumers feel comfortable eating out more.

On a year-ago basis sales growth was astronomical given comparisons with March 2020, when the pandemic was just getting underway and many stores were closed. Overall retail sales in March 2021 were up 27% from one year earlier.

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