The U.S. consumer was quoting from “Monty Python and the Holy Grail,” loudly declaring that “I’m not dead yet” in March. Total retail sales rose by 1.6% in March, a sharp acceleration from the 0.5% increase in February. As the horrors of a year ago roll off, the year-over-year numbers showed and even faster acceleration, rising to 7.6% from 4.4% in February.
Much of the increase was due to strong sales by auto dealers, but even if those are stripped out the numbers still look pretty good, with a monthly increase of 0.6% on top of a 1.0% rise in February. Excluding autos, they year-over-year growth accelerated to 6.4% from 4.5%.
Auto dealers such as CarMax (KMX) and parts stores like AutoZone (AZO) saw sales increase by 6.7%, more than reversing a 1.9% drop in February. Year over year, the acceleration was striking — rising to 14.1% from 3.8% last month. But that says as much about what was happening a year ago as it does about conditions last month.
It was not just autos driving things, though. Sales were up for almost every major category of stores with the exception of gas stations, where sales fell 0.4% after a 0.2% rise in February.
These numbers are not adjusted for price changes, and recently the price at the pump has started to increase again, so sales as gas stations should be up sharply when the April numbers are released. Clearly the weak numbers for March are only a temporary respite. Year over year, gas station sales are up 26.4% — an acceleration from the 24.0% year-over-year rise February. Clearly that is all about the price of a gallon of gas, not because Americans are all of a sudden drinking that many more 40-ounce sodas and hot dogs off the rollers.
The other type of store to post a decline was electronics stores such as Best Buy (BBY) where sales fell 1.3%, but that comes after a very strong 3.1% rise in February. Even with the drop for the month, year-over-year sales accelerated to a gain of 3.5% from a decline of 2.2% in February.
Some of the best gains came from some of the more discretionary types of stores. Furniture stores like Pier One (PIR) saw sales rise 1.5% in March on top of a 2.0% rise in February, causing the year-over-year growth to rise to 4.3% from 0.3%. Sporting goods, hobby and book stores saw a 1.0% increase on the month, matching the rise in February, with the year over year numbers rising to 6.3% from 3.3%.
Keep in mind that a 1.0% (1.01^12= 1.1268) increase for a month would mean a 12.7% increase for the year if it were sustained for 12 months.
Clothing stores, such as The Gap (GPS) posted an increase of 2.3% on the month, on top of a 1.1% increase in February, wit the year-over-year numbers rising to 5.7% from 0.2% last month.
Even the building materials stores like Home Depot (HD) had a very strong month with sales up 3.1% after only going up 0.1% in February. That brought the year-over-year numbers back into positive territory, up 0.5% rather than the down 4.5% year over year in February.
In contrast, sales of the more “steady eddie” staples-type stores were much more muted. Sales at food and beverage stores, a category that includes the grocery stores like Safeway (SWY), only rose 0.2%, down from a 1.0% gain in February. Year-over-year sales rose 3.4%, down from 3.5% year over year last month. Sales at health care stores, mostly drug stores like Walgreen’s (WAG), rose only 0.2% after being unchanged in February, and are up only 1.9% year over year, down from a 2.5% year-over-year increase last month.
Thus it looks like the Consumer is finally opening up his or her wallet, and not just for the bare necessities of life, either. Some of the pent-up demand is finally being released. It is not just those affordable luxuries, but some big-ticket — and generally easily postpone-able — items that people are buying.
This is not just a sign that people are feeling more confident about their personal economic situation, but is also a driver for future growth. Recessions are in large part about if people are buying or putting off buying those things that can easily be put off buying, which by their nature tend to be durable goods.
The one that they are not buying right now is the ultimate durable good — housing. That is simply because we bought (and built) way too many houses during the bubble.
However, sales of the “lesser durable goods,” most significantly autos, have picked up. This might just be what we need to create enough jobs that we start to see the rate of household formation pick up. That will go a long way towards absorbing the excess supply of housing on the market now.
Once that is accomplished, then residential investment can start to rise. That has the potential to create a very powerful self-reinforcing virtuous cycle. It is not certain that this will be enough to get things kick-started, but it certainly rises the odds that a virtuous cycle will take hold.
In short, this report was very good news.
Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.
More about Zacks Strategic Investor >>
Read the full analyst report on “AZO”
Read the full analyst report on “HD”
Read the full analyst report on “BBY”
Read the full analyst report on “GPS”
Read the full analyst report on “KMX”
Zacks Investment Research
