Today’s report on retail sales [3] is largely in line with expectations and holds few surprises: total sales increased 0.4 percent in March following a 1.1 percent gain in February. The other good news is that the data from January and February were revised upward a tad (the technical definition of “a tad” is a tenth of a percentage point in growth rates).
Why did spending increase? The good news reason is that incomes have been rising due to strong job gains over the last two months. Tax cuts have also helped - as we stated yesterday [4], the average household has about $78 more per month as a result of the reduction in tax withholdings this year. That adds up over the course of a year, and, on a monthly basis, can help subsidize a nice evening out (unfortunately, the technical definition of a "nice evening out" does not include donuts). Also as we've written before, stock markets are up a bunch since last summer (the technical definition of “up a bunch” is about 20 percent or so, making it about 200 times stronger than “a tad”).
So again, why did spending increase? The bad news reason is that gas prices have been increasing, and usually when gas prices rise, people spend more out-of-pocket. We see this reflected in today's data. Sales at gasoline stations have been increasing, and posted a 2.6 percent gain in March following a 2.4 percent gain in February. Putting this into more "pocketbook-y" terms, according to Energy Information Administration (EIA) [5], the average price of a gallon of regular gasoline increased from $3.21 in February to $3.56 in March. That translates into the average household being $31 out-of-pocket each month when paying for more expensive gas. (This assumes that households purchased the same number of gallons - demand does respond to price, so $31 is the upper limit).
~Mark Doms, Chief Economist, U.S. Department of Commerce
April 13, 2011
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