E Economics

Preview: US Retail Sales For March Will Beat Expectations

14 April, 2021
christophe-barraud-retail-sales-March

On Thursday, the Census will release the Advance US Retail Sales report for March. According to the Bloomberg consensus, they should rebound by 5.8% MoM, after falling by 3.0% MoM in February.

→ My proxies suggest that the consensus is too pessimistic:

  • New stimulus checks were distributed in March
  • The labor market improved markedly
  • More states decided to lift Covid-19 restrictions
  • A normalization of weather conditions boosted shopping activity
  • Auto sales and gasoline prices will also support the headline

1. New stimulus checks were distributed in March

On March 11, President Joe Biden signed the $1.9 trillion coronavirus relief package which boosted household incomes with a third stimulus check, for up to $1400 and an expanded child tax credit. The Internal Revenue Service, the U.S. Department of the Treasury and the Bureau of the Fiscal Service began processing payments from Mid-March. According to the media, more than $300 billion in stimulus money hit bank accounts in March, more than double the size of the previous round of fiscal aid. As a reminder, in January, Americans received ~$130 billion in extra cash, which resulted in a 7.6% MoM rebound of retail sales. In this context, high frequency data, such as credit and debit card spending data from JPMorgan Chase & Co and Bank of America, pointed to a sharp increase in consumer activity in late March.

2. The labor market improved markedly

Housholds also benefited from the improvement of the labor market. According to the US Bureau of Labor Statistics (BLS), nonfarm payrolls increased by 916k (the largest gain since August 2020) and were revised upward both in February (+468k v +379k prior) and in January (+233k v +49k prior). As a reminder, the reference period of the Establishment Survey is the pay period including the 12th of the month. Therefore, it didn’t take into account the second part of the month when high frequency indicators showed a significant improvement of the labor market situation. As a reminder, on March 26, 2021, job postings on Indeed “were 13.5% above February 1, 2020, the pre-pandemic baseline, after adjusting for seasonal variation“.

3. More states decided to lift Covid-19 restrictions

The improvement of the health situation since mid-January has pushed several states (California, Texas, etc.) to loosen Covid-19 restrictions. The easing of restrictions has translated into a bounce of mobility based on Apple data. Other data also show the same pattern with gasoline demand returning to pre-crisis level in March. In the meantime, there were signals that both restaurant and hotel bookings normalized upward.

https://twitter.com/C_Barraud/status/1373611284168634376

4. A normalization of weather conditions boosted shopping activity

After being particularly adverse in February, weather conditions were very favorable in March and likely boosted shopping activity. In March, according to the NOAA, “The average monthly temperature across the contiguous U.S. was 45.5 degrees F (4.0 degrees above the 20th-century average) and ranked in the warmest third of the climate record.” In the meantime, “The average precipitation in the contiguous U.S. last month was 2.45 inches (0.06 of an inch below average), ranking in the middle third of the climate record.

5. Auto sales and gasoline prices will also support the headline

Data released earlier this month confirmed that both auto sales and gasoline prices will also support the headline. According to Wards data, US new vehicle sales rose 13.3% MoM, reaching 17.75 million SAAR (highest since December 2017). Meanwhile, the CPI report for March highlighted a 9.1% MoM spike of gasoline prices.

US New Vehicle Sales March 2021

As a conclusion, my guess is that retail sales will easily smash expectations in March and confirm my views: