U.S. retail sales surprisingly surged well above economic forecasts last month, spiking to a 4% annual growth and highlighting the resilience of American consumers despite increasing inflationary pressures.

On monthly basis, retail sales grew 0.7%, softening from the 0.9% pace in February but well above the predicted 0.3% rise, the Census Bureau reported Monday.

Among spending categories, notable monthly increases were in non-store retailers, rising 2.7%; gasoline stations, rising 2.1%; and miscellaneous store retailers, rising 2.1%.

Excluding autos and gasoline stations, retail sales surged by 1% from February 2024, marking the strongest monthly pace since January 2023.

As a reaction, Treasury yields spiked as investors further dwindled expectations for Fed rate cuts. Interest-rate futures currently price in less than 40 basis points of cuts by year-end, creating another volatile session for bonds, with the iShares 20+ Year Treasury Bond ETF ( TLT ) , down 1.6%.

Chart: Retail Sales Excluding Autos And Gas Stations Experience Strongest Growth In Over a Year

Analysts Reactions

“A blowout retail sales report,” Bank of America said in a note, highlighting the “March retail sales report was unequivocally strong.”

Economists at Bank of America added that non-store retailers made the most significant contribution, likely fueled by a promotional event in March, while increased gas spending, driven by higher prices, contributed as well, yet for “bad reasons, namely higher gas prices.”

The March report also showed “large upward revisions to the January and February data,” which should bode for the full-quarter retail spending narrative.

Bill Adams, chief economist for Comerica Bank, adjusted his prediction, now anticipating the Fed to commence rate cuts in September instead of June, with expectations of two quarter-percentage-point reductions in the federal funds rate by the year’s end.

“The economy is growing solidly in early 2024 and the Fed has little reason to worry about a recession near-term, keeping their focus squarely on controlling inflation,” said Comerica Bank.

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, noted that robust consumer sales and low unemployment have propelled companies to record profits, but this situation has also put “the Fed on its back foot.”

Although strong corporate profits and the prospect of lower rates have buoyed markets, Zaccarelli suggests exercising caution in the near term due to the increasing tension between these factors.

“Another beat for U.S. economic activity,” said Mohamed El Erian, economic adviser at Allianz. The expert views the U.S. retail sales report as supporting the notion of ongoing “U.S. economic exceptionalism” and, for the time being, dispels worries regarding the gradual decline in household balance sheets.

“The consumer is consuming, a lot.  If you were looking for an economic slowdown, you aren't getting it,” Jamie Cox, managing partner for Harris Financial Group, said.

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