Consumers Power Through on the Way to Higher Rates

U.S. retail spending withstood March’s huge energy price shock, showing that wealth built up during the Covid-19 pandemic is providing powerful support to the economy. The specter of higher interest rates this year promises to further test consumption, but so far the evidence suggests retailers and restaurants will endure.

The University of Michigan’s consumer sentiment index jumped to 65.7, exceeding all estimates in a Bloomberg survey of economists as it recovered from the doldrums of last month. Earlier Thursday, a Commerce Department report showed the value of retail purchases rose 0.5% in March. Most of the increase was driven by higher gasoline receipts, but it wasn’t a bad outcome overall, considering the repercussions of Russia’s invasion of Ukraine. What’s more, high-frequency debit card data from Facteus suggest that spending may have bottomed somewhat during the early part of the month and stabilized since then as shoppers prepared for a slightly later Easter holiday season.