Last week’s strong retail sales numbers, particularly in the US, continue to strengthen the view of a strong and accelerated economic recovery, led by the US consumer.

US retail sales numbers, marked a strong rebound that exceeded market expectations. Monthly retail sales rose by 9.8% in March, 3.9% higher than expected, supported by government stimulus cheque payments and an accelerated vaccine programme that facilitated the broader economic re-opening.

Implicitly, given the plunge in sales at the start of the pandemic, year-on-year retail sales recorded a record high annual increase of 27.7%. The food and beverage stores were the only business group that recorded a year-on-year fall in sales, down by 11.8% given the higher comparison of last year. The strongest year-on-year growth, on the other hand, was recorded across clothing, which doubled year on year, followed by sporting goods and hobby, and motor vehicles and parts.

Underlying industry growth rates on a monthly basis show a broader based increase in spending, including double digit growth across pandemic hit sectors. Sales across restaurants and bar expanded by 13% in one month, while food and beverage stores grew marginally by 70 basis points. Meanwhile, sporting goods and hobby, clothing as well as motor vehicles and parts, recorded the highest monthly increases in consumption.

Compared to the pre-pandemic level, the March US retail sales pushed the sales level 17% higher compared to that recorded in February 2020. In contrast, total sales volume in the euro area as at February, still stands below pre-pandemic levels. Albeit that last week’s Eurozone’s retail sales also surprised to the upside, total sales volume so far has reached 97% of that recorded in February 2020. Given the resurgence of covid-19 variants, the renewed lockdowns and restrictive measures are expected to continue to negatively impact Europe sales data for the month of March, which would therefore weigh down on economic data for the first quarter.

Meanwhile, earnings updates from US banks coincide with the growth trend in the US consumer spending. Bank of America, for example, which announced first quarter earnings last Thursday, noted that March was a record month of spending by their consumers which boosted the quarterly spending to a record level. Similarly, JP Morgan communicated that debit and credit card spend returned to pre-pandemic levels, up 9% compared to 2020 and 14% compared to 2019, reflecting the increased consumer optimism.

Importantly, the better than expected retail sales statistics support a strong marginal propensity to consume. This argument holds when considering that higher than expected spending was recorded when personal income increased by $1,400 worth of stimulus payments. With two thirds of US gross domestic product dependent on the consumer, the surge in retail sales bodes well for economic growth expectations for the first quarter.

Moreover, given the fast pace towards herd immunity, combined with the relatively still elevated savings rate and pent-up consumer demand, particularly for services such as travel, entertainment and dining experiences, the US consumption growth is expected to continue to recover. This further sustains the view for a strong and accelerated economic recovery in the US.


This article was written by Rachel Meilak, CFA, Equity Analyst at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd which is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.

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