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Consumer Spending Rebounded in March

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04/18/2019 | 08:46am EDT

By Sharon Nunn and Harriet Torry

WASHINGTON--Retail sales in the U.S. bounced back in March after a stretch of weak spending, another sign that first-quarter growth was stronger than expected.

Retail sales, a gauge of spending at restaurants, brick-and-mortar establishments, and online stores, increased a seasonally adjusted 1.6% in March from a month earlier to $514.1 billion, the Commerce Department said Thursday. This was the largest monthly gain since September 2017. Economists surveyed by The Wall Street Journal expected a 1.0% jump in sales.

Outlays on cars and car parts, along with spending at gas stations, boosted overall spending in March, with auto sales clocking the heftiest monthly gain since September 2017. In addition, gas prices have risen recently, which boosted the amount consumers spend at gas stations.

But even when removing auto-related spending from the mix, consumer spending still grew a solid 0.9% in March, higher than the 0.7% gain economists expected for this underlying measure.

Last month's consumer spending gain was broad-based with sales growing for every major type of store except the sporting goods and book store category. Outlays at furniture shops and clothing stores grew at the fastest pace in almost a year.

Consumer outlays dropped in February, after a jump in retail sales in January didn't make up for a sharp drop in spending in December. Thursday's report shows that outlays at the end of the first quarter more than made up for losses in February, a sign that economic growth was likely stronger than analysts had been predicting.

Forecasting firm Macroeconomic Advisers on Wednesday projected gross domestic product grew at a solid 2.4% seasonally adjusted annual rate in the first three months of 2019, largely because of ramped up exports.

Analysts suggest tax refunds could have had an impact on the recent data. Through March 29, the Internal Revenue Service had paid out $206 billion in tax refunds, a 2.9% decline from the equivalent period in 2018. That represents a combination of three factors. First, this tax season has been slower than usual, and the IRS had processed 1.4% fewer returns through March 29. Also, a slightly smaller percentage of tax filers are getting refunds. And finally, the average refund for that period was down 0.7%.

This tax-filing season is the first under the law that Congress passed in late 2017 and the paycheck-withholding changes implemented in early 2018. Although most households are getting tax cuts and overall refund patterns have barely changed, individual households may be surprised -- in both directions -- by variation in their refunds or the amount of taxes they owe.

Particularly for low-income households, refunds drive consumer spending. For many, the tax refund is the largest financial event of the year, and households use the money to pay down debt, make major purchases or catch up on bills.

The partial government shutdown in December and January appeared to put a damper on outlays and overall economic activity, an effect that has likely dissipated.

More broadly, the U.S. economy should be poised to support solid consumer spending in the coming months, as employers continue churning out jobs and the tight labor induces faster wage growth and higher consumer confidence.

"We still feel like the consumer is on a stronger foundation… we have wage growth" above 3.0%, Gregory Daco, chief U.S. economist at Oxford Economics, said before the retail-sales report's release. "Savings are high [and] consumers are spending in line with income they generate."

Write to Sharon Nunn at sharon.nunn@wsj.com and Harriet Torry at harriet.torry@wsj.com.

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