Consumer Spending on the Rise

April 15, 2008--Sales at retailers inched up 0.2% in March as consumers spent money at sporting goods stores and gasoline stations, though the latter is due to ongoing increases in energy prices, not increased demand for gasoline. The trade deficit widened an unexpected 5.7% in February to $62.3 billion. Trouble persists in the housing market, as the index for pending home sales fell 1.9% to 84.6% due to buyers' reluctance to invest in real estate.

 

Retail Sales
In March, total retail sales rose 0.2%, after an upwardly revised -0.4% in February. Increased spending at nonstore retailers (2.1%), sporting goods stores (1.4%), and gasoline stations (1.1%) fueled growth in March. Building supply stores (-1.6%) and general merchandise stores (-0.6%) faced the largest declines. Core sales, or those excluding the purchases of autos, gasoline station sales, and the building materials group, increased 0.2%. On a year-to-year basis, top-line retail sales increased 2.0%. Consumers appear reluctant to spend on nonessentials, as record high energy prices, limited credit, and increasing unemployment take their toll.

 

International Trade
The trade deficit widened significantly in February, increasing a surprising $3.3 billion to $62.3 billion, a 5.7% increase. Exports increased 2.0% to $151.4 billion. Also, imports increased 3.1% to $213.7 billion. With the weak dollar and the sluggish U.S. economy, the trade balance should narrow into the future, as demand for imports will fall while U.S. goods will become cheaper on the world market. However, the high cost of oil may limit significant reductions in the trade balance.

 

Pending Home Sales
The index for pending home sales decreased in February by 1.9% to 84.6, indicating continued turmoil in the housing market despite last month's reprieve. Compared to a year ago, the index lost 21.4% of its value. Potential homeowners may begin to reenter the market as prices are low and supply is plentiful. However, a continued shortage of credit and general unease over the future of the economy may hinder potential buyers.