Retail sales gain is a sign tax reform may be working

Consumers are increasing their spending, which may be a plus for the stock market during a period of volatility. U.S. retail sales rose in March more than forecast after three straight monthly declines, with consumers buying more big-ticket items. This evidence of healthy sentiment could drive markets higher in the second quarter.

Retail sales increased 0.6% in March after a 0.1% drop in February, the Commerce Department reported on Monday. The January retail data was revised down to show that sales declined by 0.2%, steeper than the previously reported 0.1% dip.

Economists polled by Reuters had forecast that retail sales would rise by 0.4% in March. Year-over-year, retail sales increased 4.5%.

There have been hopes that with many Americans seeing their paychecks increase because of tax cut savings, consumer spending would climb. Such an increase, in turn, would be good for the economy overall, with more than two-thirds of U.S. economic growth attributed to consumer spending.

The latest monthly retail sales data suggested that tax reform is padding consumers’ wallets and that they are more than happy to spend their savings, according to some analysts.                                                                                 

“These are strong numbers, no doubt surging from the shot in the arm tax reform provided,” said Mike Loewengart, vice president of investment strategy at E*Trade. “Consumers are seeing more in their paycheck, and it appears they’ve gone shopping—certainly good news for investors.”

Stock markets have gone through a volatile period and are seeking direction.

“With most earnings reports arriving in the next few weeks, this is a pivotal time for a market that is in search of something positive to latch on to,” Loewengart added. “It appears, at least at the moment, strong economic fundamentals just simply aren’t enough to fire the bull rally back up.”

National Retail Federaton Chief Economist Jack Kleinhenz called the retail sales report a “healthy spending report” despite market volatility, unseasonable weather and uncertain economic policies. “Consumers continue to show resiliency in spending, and these numbers reflect how the economy is performing with a strong job market, gains in wages, improvements in confidence, rising home value and judicious use of credit,” he said.