Retail sales in the United States rose sharply in March as households accelerated motor vehicle purchases ahead of new tariffs, even as concerns about the economic outlook weighed on discretionary spending.
The Commerce Department reported on Wednesday that retail sales rose 1.4% last month, following an unrevised 0.2% gain in February. Economists polled by Reuters had expected 1.3% growth in retail sales, which are mostly goods and are not adjusted for inflation.
The 25% tariffs on cars announced by President Donald Trump took effect in early April. Industry analysts and manufacturers have warned that the duties will cause vehicle prices to rise sharply.
Automakers reported a big jump in vehicle sales in March, partly attributed to “buyers rushing to get ahead of the tariffs.”
Consumers also reportedly began stockpiling other imported goods. Credit and debit card data from major banks show spending is now being driven more by higher-income households, while lower-income consumers continue to struggle. Discretionary spending – particularly in the services sector, a key driver of the economy – is slowing.
With stock markets falling on inflation concerns and the risk of slower economic growth or a recession, there are concerns that higher-income households may start to cut spending if the value of their investment portfolios continues to decline.
Consumer sentiment is near a three-year low, while 12-month inflation expectations are at their highest since 1981. Mass layoffs of public sector workers as part of the Trump administration’s sweeping campaign to shrink the federal government are also weighing on morale and could be an additional drag on consumer spending.
Economists expect core retail sales to rise 0.6% after an initial report showed a 1.0% jump in February.
Consumer spending, which accounts for more than two-thirds of the economy, grew at an annualized rate of 4.0% in the October-December quarter.
But for the first quarter of 2025, economic growth projections are mostly below 0.5%. The Atlanta Federal Reserve now expects GDP to contract by 0.3% after adjusting for gold imports and exports. The economy grew 2.4% in the fourth quarter of last year.
