Retail sales rose 0.8% in March, better than expected and another sign U.S. consumers can keep spending, despite high gasoline prices.
While many economists have wrongly been predicting high gas prices would crush consumers, Mark Zandi, chief economist at Moody's Analytics, as been more upbeat, a view reinforced by Monday's retail sales data.
"Growth isn't as strong as it appears in the data that came out of the winter because it was incredibly warm, but even [accounting for] that underlying growth is pretty solid," Zandi says.
Notably, retail sales excluding auto and gasoline sales -- which Zandi calls a "key gauge of where consumer are" -- rose 0.7% in March and are up 5.6% on a year-over-year basis. "It's not boom times, but that's pretty good," he says. Overall retail sales are "up and up in a solid way."
Zandi attributes two main forces to the surprising strength of U.S. consumers: jobs and the stock market.
While the labor participation rate is down and the "real" unemployment rate remains stubbornly high, Zandi notes job growth has been "increasingly broad based," across various industries, regions and occupations. He believes payroll growth will average 175,000 to 200,000 per month this year, which is enough to bring the unemployment rate down and sustain solid consumer spending.
Meanwhile, strength in the stock market, until very recently at least, has provided further impetus for spending by wealthier households, who account for a disproportionate of overall consumer spending.
Wealthier Americans have also greatly reduced their debt levels since the crisis of 2008, Zandi notes, another key distinction between higher income consumers and those in the bottom half.
Add it all up and Zandi believes the economy could be on the brink of a "virtuous cycle", where job growth is strong enough to maintain consumer spending which will lead to more hiring and further strength in household spending. His forecast is for the unemployment rate to fall below 8% by Dec. 31 and approach 7% in 2013.
The recovery is "still fragile" and "anything goes off script [will] slow growth significantly," he concedes. "But with a little bit of luck, we'll be off and running here."
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- Mark Zandi