The U.S. economic recovery is accelerating as stimulus money, Covid-19 vaccinations and business re-openings spur a spring surge in consumer spending, a sharp pullback in layoffs and a bounceback in factory output.
Retail sales—a measure of purchases at stores, at restaurants and online—jumped 9.8% in March, the Commerce Department reported Thursday. The gain in consumer spending—the biggest driver of economic activity—came as the government began distributing hundreds of billions of dollars of stimulus funds to households. It was the largest monthly gain since last May, during the initial recovery from lockdowns early in the Covid-19 pandemic.
Separately, nearly 200,000 fewer workers filed for initial unemployment benefits last week. Jobless claims, a proxy for layoffs, fell to 576,000 last week from 769,000 a week earlier, the Labor Department said. While claims are still above levels that prevailed early last year, last week’s figure was the lowest since March 2020. The total number of people receiving benefits also fell across a range of state and federal pandemic-related programs.
The government also reported Thursday that industrial production—a measure of factory, mining and utility output—rebounded in March after a decline in February. Factory output, which rose 2.7% over the month, helped drive the gain.
The economic readings taken together reflect “people going back to work, people seeing more income, people spending. This is a good story about the American economy’s resilience,” said Joseph Brusuelas, chief economist at RSM.
Stocks rose on the economic news and strong earnings from blue-chip companies.
The gains in retail sales last month were broad-based, and showed a robust spending pickup in some categories that suffered early in the pandemic as people stayed at home to avoid the coronavirus.
Sales at restaurants and bars, for example, jumped 13.4% last month from February and 36% from March 2020, at the beginning of the pandemic.
Retail sales also jumped at clothing and department stores last month, which could reflect Americans seeking to refresh their wardrobes as they resume activities outside the home, said Michelle Meyer, head of U.S. economics at Bank of America.
“The reopening progressed throughout March, with more and more states easing restrictions, more and more people becoming vaccinated and feeling comfortable re-engaging in the economy and activities that they did previously,” Ms. Meyer said.
Meanwhile, sales at grocery stores—which surged at the pandemic’s onset amid state and local government lockdown orders—increased just 0.5% on the month and fell sharply over the year, by 13.8%.
PepsiCo Inc. (PEP), for instance, expects sales growth of oatmeal, pancakes and other packaged foods to slow in the second quarter as more people become vaccinated and consumers cook less at home. The company’s Quaker Foods North America unit, which sells Rice-A-Roni and Cheetos Mac ‘n Cheese, benefited more from the pandemic than the company’s chips and beverage businesses, Chief Financial Officer Hugh Johnston said in an interview.
An average of roughly 2.9 million vaccine doses were administered daily across the U.S. in the seven days ended April 9, compared with about two million at the beginning of March, according to data from the Centers for Disease Control and Prevention. A pause this week in the use of the Johnson & Johnson (JNJ) shot is expected to have a limited impact.
Meanwhile, U.S. consumer confidence is at its highest levels since the pandemic began, buoyed by signs of momentum in the economic recovery and federal aid.
The federal government has since mid-March disbursed about 159 million stimulus payments of more than $376 billion to households from the latest virus-aid package, the Treasury Department said this week.
The U.S. labor market is also showing signs of healing. The four-week moving average for jobless claims, which smooths out weekly volatility, declined last week to a pandemic low of 683,000.
The total number of people receiving unemployment assistance also fell. About 16.9 million people were collecting unemployment benefits through state and federal programs in the week ended March 27, down from 18.2 million a week earlier.
Still, the economy in March had 8.4 million fewer jobs than just before the pandemic hit, underscoring how government aid has boosted consumers’ ability to spend, said Richard Moody, chief economist at Regions Financial Corp.
“The story is that there’s a lot of financial support in the household sector, even though the level of employment is still so far below where it was prior to the pandemic,” Mr. Moody said.
Research from the Federal Reserve Bank of New York found that Americans planned to use or were using nearly a quarter of the latest federal stimulus payments for spending on essential and nonessential items, while directing the remainder of the funds toward savings or paying down debt. The Fed survey also showed people intended to spend less of the most recent stimulus money than in two earlier rounds.
Bank of America (BAC) data tracking credit- and debit-card spending showed consumers in March sharply increased spending on clothing and furniture and at department stores and restaurants.
Similarly, figures from Earnest Research, a data analytics company that tracks card spending, showed that consumer spending was up 29% in March compared with February and up 24% last month compared with the same period last year.
With increased vaccine circulation and Covid-19 cases retreating from recent peaks at the end of 2020 and into early 2021, many states have eased restrictions on businesses by, for example, reversing bans or loosening limits on indoor dining.
Scott Allen Frost, president of Las Vegas-based Titan Brands Hospitality Group, said the rollout of stimulus funds to households last month coincided with a relaxing of state mandates that allowed restaurants, including the three he oversees, to operate at increased capacity.
“You couldn’t have timed March better,” Mr. Frost said. “All this pent-up demand came roaring back.”
He said sales more than doubled last month compared with March 2019 at Slice of Vegas Pizza Kitchen & Bar and at Titan Brands’ two other restaurants, which serve Mexican fare.
Mr. Brusuelas, of RSM, said spending in the service-sector, which makes up the majority of U.S. consumer spending and where employment gains and outlays have lagged behind, could further accelerate as additional stimulus efforts, such as the expanded child tax credit, make their way through the economy later this year.
Economists broadly expect consumer spending, which accounts for roughly two-thirds of U.S. economic output, will help propel U.S. economic growth this year at its best rate in decades.
Economists surveyed by The Wall Street Journal in April on average forecast U.S. economic output will grow 6.4% in 2021, up from an average forecast of 5.95% expansion in March.
Still, concerns over the pandemic’s trajectory remain, with U.S. cases edging up recently and vaccination efforts complicated by reports of rare but severe blood clots among a few recipients of the Johnson & Johnson vaccine. Federal Reserve officials and many economists have said any sustained resurgence in cases could threaten the economic recovery.
Mr. Frost, of Titan Brands Hospitality Group, said he had a cautiously optimistic outlook for the months ahead. He is worried that business could be constrained by factors such as rising prices and the difficulty he has encountered recently trying to hire new workers.
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