US retail sales grew in March even as inflation edged higher, with demand for apparel up both year-on-year and sequentially.

US apparel retailers saw sales rise 2.6% month-on-month in March, according to data released by the US Census Bureau. Sales increased by 7.3% compared to the same period a year ago.

Overall retail sales in March were up 0.5% seasonally adjusted from February and up 6.9% year over year. That compares with increases of 0.8% month-over-month and 18.2% year-over-year in February. Despite occasional month-over-month declines, sales have grown year-over-year every month since May 2020, according to Census data.

“March retail sales show that consumers have maintained their ability to spend in the face of record-level inflation, supply chain issues, and geopolitical unrest,” National Retail Federation (NRF) president and CEO Matthew Shay says. “Consumers are adapting and shopping smarter for themselves and their families. We believe the strength of the consumer can carry the economy through this considerable economic uncertainty if policymakers implement measured policies and do not overreact to current conditions.”

NRF chief economist, Jack Kleinhenz, adds: “While prices soared in March and eroded spending power, shoppers remained resilient and sales were healthy. Consumers have the willingness to spend and their ability to do so has been supported by rapid hiring, increased wages, larger-than-usual tax refunds, and the use of credit. They are largely dealing with the shock of gas prices but will be facing higher interest rates as the Federal Reserve tightens monetary policy in the coming months. The challenge for the Fed is to cool off demand without pushing the economy into a dramatic slowdown.”

NRF’s calculation of retail sales – which excludes automobile dealers, gasoline stations, and restaurants to focus on core retail – showed March was unchanged seasonally adjusted from February but up 4% unadjusted year over year. In February, sales were down 0.7% month over month but up 13.2% year over year.

NRF’s numbers were up 8.6% unadjusted year over year on a three-month moving average as of March. That is consistent with NRF’s forecast that 2022 retail sales will increase between 6-8% to total between $4.86 and $4.95 trillion.

March sales were up in all but two categories on both a monthly and yearly basis, with year-over-year gains led by grocery, clothing, and furniture stores.

Clothing and clothing accessory stores were up 2.6% month-over-month seasonally adjusted and up 7.5% unadjusted year-over-year.

Sporting goods stores increased 3.3% month-over-month seasonally adjusted but fell 5.7% unadjusted year-over-year.

Online and other non-store sales, meanwhile, were down 6.4% month-over-month seasonally adjusted but up 2.6% unadjusted year-over-year.

Inflation driving sales growth

Neil Saunders, managing director of GlobalData, notes the long boom of hefty retail growth came to an end in March as sales rose 7% – a reasonable pace of increase but one that is entirely driven by inflation with negative volume growth across many categories.

“The consumer, struggling with higher costs across almost every part of the economy has not exactly taken flight, but has started to trim what they buy, especially in more discretionary categories. Core retail sales, which exclude gasoline, food service and automotive vehicles, increased by a modest 4%. This is the lowest rate of growth in 21 months. Despite the softer outcome, none of this is a disaster. The important context behind the numbers is a very tough prior year comparative, when total sales increased by 32.4% – helped along by continued stimulus payments and tax refunds. Against this, it was inevitable that retail growth would moderate, although perhaps not by quite as much as it has done.

“Compared to March 2020, sales increased by 41.6%, and compared to March 2019 they rose by 30.7%. These things underline the fact that the consumer economy is not in recession. The problem, however, is that much of the growth is coming from higher prices which shoppers are forced to pay rather than willingly going out and spending more. And there is a big difference between those two things.”

At a category level, Saunders says sales at apparel stores increased by 7.5%, adding GlobalData estimates that around 8.2 percentage points of this is down to inflation.

“This position represents a clear break with the past couple of years when both higher volume and value spending helped all retailers as consumers spread their buying activity among a wide number of players. If people continue to cut back on the number of things they buy, some retailers will lose out. This will create a polarisation between winners and losers in retailers that we have not seen for a while,” he adds.

“Online is also in an interesting place with non-store sales recording a very low 2.6% growth rate in March – the weakest growth in 38 months. Last year, online grew strongly, but this does not account for all the deterioration. Some is also down to online purchases being more discretionary and therefore easier to cut back on. And some is also a consequence of consumers assessing whether they want to pay online delivery charges and fees at a time when their finances are under pressure. In our view, while online will do reasonably well over 2022, it will be a much patchier year for a channel that has benefitted enormously during the pandemic.

“The other negative factor is how higher prices affect consumer sentiment. There is mounting evidence that households are now increasingly nervous about inflation and this in turn is sapping their confidence. It is notable that bigger ticket sectors like automotive and electronics have posted negative growth this month. Some of this is down to a high prior-year benchmark, but much is also a function of people spurning expensive purchases as they try and balance their budgets.

“Looking ahead, there is no need to be overly gloomy about retail. However, it is now very clear that 2022 will be a much tougher year. Ironically, while the pandemic years delivered a boom in spending, the post-pandemic period will be much more frugal.”

By Just Style