Americans cracked open their wallets a little wider in March, driving retail spending up by 0.8 percent from February, more than doubling many economists' predictions for that growth rate, according to advance figures. That $411 billion that Americans spent last month is also up by 6.5 percent from March 2011. Growth like that suggests that the recovery is stronger now than at this point last year, just before job growth retreated.
"It's hard to find a problem with these numbers. They're unbelievable," says Joel Naroff, president and chief economist at Naroff Economic Advisors, a Pennsylvania-based economic consulting firm.
Spending growth was broad-based, led by a strong increase in motor vehicles and auto parts sales. Spending in that area was at a seasonally adjusted $73 billion in March, up from $67.4 billion last March. In addition, spending at building material and gardening equipment dealers was 14 percent higher than last March. Particularly strong year-over-year growth also came from gas stations (7.6 percent), clothing stores (7.9 percent), and furniture stores (6.6 percent).
There may be no problem with the numbers, as Naroff says, but future spending figures could easily disappoint.
"While Q1 retail spending has been strong, Q2 sales will not have the benefit of mild winter weather and accelerating auto sales growth," writes Alistair Bentley, economist at TD Economics. Many consumers may have simply shifted some of their spending earlier due to the warm weather, starting on home improvement or gardening projects in March instead of April or May, for example.
Naroff agrees that, while consumers look remarkably confident, they can't buy goods with confidence alone.
"This is an outsized kind of number, and I think what it's reflecting is the willingness of people to spend and also dig into their savings to spend some money," he says. "But to have strong consumption and strong retail sales going forward, we need not just better job growth but also better wage growth."
"We don't expect [consumers] to continue spending like this," he adds.
Still, more spending is more spending. When consumers are freer with their money, if even for a short while, that money could boost how much employers are willing to spend on labor, making for an accelerating and yet more sustainable recovery.
"This kind of spending is going to generate more job growth, and that's really the trigger to the next phase of the recovery, where consumers feel comfortable enough to spend—not just on motor vehicles but on everything else," says Naroff.
The new data also bodes well for healthier economic indicators. After GDP growth of 3.0 percent in the fourth quarter of 2011, consensus estimates for first-quarter 2012 GDP are around 2.3 percent. Recent evidence of improved spending might give reason to hope that the figure, out next Friday, will be slightly higher.