Retail sales increased in March. Are they sustainable?

The March retail sales data released yesterday by the U.S. Commerce Department — which showed an overall increase of 0.9%, but only 0.2% when stripping out food and energy — tell us that consumer spending ticked up but is still far from strong. The data suggest that consumers are visiting their favorite stores again, but that conditions are still a bit too soft to support pre-recession spending levels.

We think at least two factors are currently posing some degree of negative influence on retail sales. The first has to do with energy prices; despite the persistence of cheap oil, consumers have not been motivated to spend more. In other words, any savings from lower gasoline prices have not necessarily translated to increased spending elsewhere. In our view, it’s fair to assume that people are applying those savings to other areas, such as paying down debt or building up their savings accounts.

The second factor is wage growth. In short, we are not sure that wages are posting a sustained string of growth that would be sufficient to prompt a spike in overall retail activity. We believe wages make up one of the bigger drivers of sales momentum, and their anemic growth rate could continue to put a restraint on sales numbers in the months to come.


The views expressed represent the Manager's assessment of the market environment as of April 14, 2015, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not always reflect the Manager's current views.

Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

Notes from the desk

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