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Retail sales: What's driving demand?

In March, retail sales saw their largest monthly increase in a year and a half.

The Commerce Department reports retail sales in March rose 1.1 percent from the previous month, and 3.8 percent from one year ago. It’s the biggest gain since September 2012, and was led by auto sales—up 3.1 percent—and building materials and garden supplies—up 1.8 percent. Except for electronics stores, appliances stores and gas stations—which saw their sales fall—the retail rebound in March was across the board—clothing, bars and restaurants, health and personal care, books and music.

The rise in March came from improving weather, after a dismal winter with frigid temperatures and heavy snowfall across the East and Midwest, and drenching rain at times in the Pacific Northwest.

Deborah Trout-Kolb was heading into a Nordstrom department store in downtown Portland, Ore. She owns a fitness studio in New Haven, Conn., where she lives, and she said the ‘horrendous’ winter weather depressed her income.

“Obviously if people can’t come into a dance and fitness studio they don’t pay,” she said. “But I believe it’s getting better.” And that’s making her feel a bit more like shopping now. “You’ve got to do that retail therapy every once in a while,” she said.

Nationwide, people who didn’t shop for clothes or washing machines or cars in mid-winter, have come into stores with a vengeance. However, there are still headwinds at the bottom of the income ladder, said economist Chris Christopher at IHS Global Insight: “Extended unemployment benefits being phased out, in addition to food stamps being lowered.”

And for the middle-class, income and household wealth still haven’t caught up to pre-recession levels, said NYU economist Edward Wolff. He said a main driver of the improving store-sales figures is increased borrowing.

“Rising debt levels, consumer debt particularly, is helping to increase consumer spending [and] retail sales,” said Wolff.

Some of that consumer borrowing is driven by people feeling better-off—a so-called ‘wealth effect’—if their home or stock portfolio has risen in value. And some of it is the need for ‘retail therapy’ that the shopper heading into Nordstrom was talking about.


By Shea Huffman/Marketplace

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.

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