US retail sales are poised to rise by an estimated 1.5% mom in March driven by improved weather conditions and by the earlier gains in real disposable income which have yet to be spent.
Automakers reported a seasonally adjusted 5.5% sequential increase in unit sales which should contribute 0.7% of the projected increase in overall retail activity. A rebound in retail gasoline prices should also help propel sales higher. Gasoline costs rose by an estimated 8.3% in March, or by 2% after adjusting for normal seasonality. This should contribute 0.3% to the headline retail sales figure.
Even after stripping out these two volatile components, retail activity is projected to rise by a solid 0.8%. Sales of building materials, which correlate well with housing activity, should also benefit from better weather conditions, contributing 0.2% of the projected headline gain.
Excluding autos, gasoline sales and building materials, retail control sales - a key component of consumer spending in the GDP accounts - is forecast to have risen by 0.5%, the strongest reading since November.
Societe Generale says the March retail sales report will constitute a key test for the US economy. Activity data - including retail activity - has surprised sharply on the downside since the beginning of the year. As a result they revised their Q1 GDP estimate from our original forecast of 3.5% to 1.5%.
"We believe that much - though not all - of the weakness was related to unseasonably cold temperatures. If so, activity should snap back sharply in Q2 and we project second quarter GDP growth of 4.8%. On that basis, we continue to view the June FOMC meeting as a strong contender for a lift-off in rates. Another disappointing retail sales report would seriously undermine our thesis, essentially taking the June meeting off the table", added Societe Generale
