Retail Sales Jump in March, Lifting Growth Forecasts

Sales at U.S. retailers, underpinned by tax refunds and the lowest interest rates in four decades, rose 1.8% in March, the biggest increase in a year, prompting economists Tuesday to raise their forecasts of economic growth.

“This is a huge number, one of the strongest I’ve ever seen,” said Cary Leahey, a senior economist at Deutsche Bank Securities in New York who has tracked retail reports since 1983. Excluding autos, retail sales in March jumped 1.7%, the biggest increase in four years.

Wall Street analysts had expected both figures to advance 0.6%.

The Commerce Department also reported that business inventories rose 0.7% in February, the biggest increase in more than three years. The accelerated pace of consumer spending and stockpile building has led economists to suggest that the world’s largest economy grew faster in the first quarter than they previously had thought.

Bond prices and stocks tumbled on concern that the sales report could prompt the Federal Reserve to raise interest rates as soon as September.

Tax refunds are running $11.1 billion ahead of last year, boosting sales at companies including automaker General Motors Corp. and J.C. Penney Co., the second-largest U.S. department store chain. Consumer spending, which includes retail sales, accounts for 70% of gross domestic product.

One sign that companies are having trouble keeping up with demand is that inventories in February were enough to last just 1.33 months at the current sales rate, the leanest ever.

Last month’s gain in retail sales was more than double what many economists had expected and came after a revised 1% increase in February. Sales excluding automobiles had risen 0.6% in February.

Morgan Stanley economists raised their first-quarter forecast to about 5% from 4.4%. Deutsche Bank said it was likely to raise its first-quarter growth forecast to 6% from 4.7%.

The increase in inventory building suggests businesses may be more confident about hiring as production ramps up and consumer spending continues to grow, economists said. The economy added 308,000 jobs in March, the most in about four years.

“A good economy produces good profits before it produces inflation,” Diane Swonk, chief economist for Bank One Corp. in Chicago, said.

“We’ve got some inflation concerns out there and concerns that the Federal Reserve will be taking rates back, but the bottom line is this is exactly what the Federal Reserve has been waiting to see.”

Economists had estimated that retail sales rose last month to $327.7 billion after a 0.7% gain in February, based on the median of 63 projections in a Bloomberg News survey. Excluding automobiles, economists predicted an increase to $250.5 billion after no change in February.