US Retail Sales Surge by Most in a Year as Spending Extends Beyond Gas

The value of overall retail purchases increased 1.7% following a revised 0.7% gain in February, according to a Commerce Department report published Tuesday. The data are not adjusted for inflation.

While the March increase was led by a record jump in spending on gas, nearly every category in the report — from furniture to electronics to general merchandise — posted increases.

That strength likely reflects larger-than-usual tax refunds flowing into households’ bank accounts in recent weeks. As a result, forecasters may boost estimates for first-quarter gross domestic product, which the Bureau of Economic Analysis will publish on April 30. (…)

Excluding gas stations, sales rose a firm 0.6%. Motor vehicle sales were up 0.5%. Receipts at restaurants and bars, the only service-sector category in the report, advanced 0.1%.

High-frequency card data have been mixed in recent weeks. Reports from PNC Financial Services Group Inc. and the Bank of America Institute pointed to strength in spending in discretionary categories such as travel and electronics, while Visa’s Spending Momentum Index suggested that — excluding gas — spending across discretionary, non-discretionary and restaurant categories declined.

The retail sales report showed so-called control-group sales — which feed into the government’s calculation of GDP — were up 0.7%, the most since August. The measure excludes food services, auto dealers, building materials stores and gasoline stations.

Americans are … Americans. We will get more data on income and spending Friday next week but March retail sales, with upward revisions in both January and February, tell us that Americans are still very much able and willing to spend.

Goldman Sachs estimates that real core retail sales rose at a 1.9% three-month annualized rate through March.

War-related inflation has yet to fully find its way into wallets but tax refunds are spent merrily.

The consumer is still spending, and this is partially due to larger tax refunds offsetting the initial hit from higher gasoline prices. Right now refunds are up over $40 billion versus last year, which is a 17% increase over the prior year. And the total number of refunds sent is up 3 million MORE versus the same time last year. So it would be hard to ignore this reality, especially as it relates to the state of spending today. (Wells Fargo)

Super Core retail sales are up 4.8% YoY in March:

(RBA Advisors)

The half-full glass view:

• My Tuesday post (Resilient!) warned about the sharp slowdown in real disposable income amid rising inflationary pressures from the war in Iran.
• But the retail sales data show that Americans, in aggregate, are not bothered much by the jump in gas prices.
• Ed Yardeni’s smart chart below, plotting the savings rate against wealth/disposable income, says that a savings rate below 4.0% should not be discounted given accumulating wealth.

• Continued strong consumer spending coupled with “solid” government expenditures would keep the economy humming through 2026 and possibly into 2027. The White House recently asked for a 42% increase in the Department of War’s budget for 2027.

The half-empty glass view:

• Assuming the above well stimulated economy, the resulting demand pull could fuel inflation higher and for longer than currently forecast by most economists and strategists, forcing the FOMC to raise interest rates. This could in turn boost the government’s interest payments, further aggravating the budget deficit.
• This “growthflation” scenario could spook leveraged investors in historically overvalued equities, potentially creating a negative wealth effect while lower-K Americans would still be in “coping mode”.

On April 15, a confident Ed Yardeni posted The Champagne Glass Is More Than Half Full:

Happy days are here again! (…)

The private credit bubble may be losing some air, but it isn’t bursting, while banks are still lending. Real GDP slowed during Q4-2025 and Q1-2026, but some of that was related to bad weather.

(…) it feels like the Roaring 2020s are back, given the strong V-shaped recovery in stock prices since March 30.

So what could possibly go wrong? Obviously, the war could flare up again. Oil exports might remain blockaded in the Arabian Gulf, causing oil prices to rise again. Let’s search for additional possible troubles in the economic reports of the past couple of days:

The Fed’s Beige Book was released today, covering data collected on or before April 6. The main message is that risks are skewed toward the inflation side of the Fed’s dual mandate:

• Labor markets held steady, with employment flat to slightly up in most districts (…). Wages remained modest to moderate across all districts, with no acceleration or deceleration reported.
• The most consequential shift from the March Beige Book is the energy price shock now hitting the economy. (…) The short-term inflation picture has clearly worsened. The Beige Book is broadly consistent with our view. The economy remains in good shape, but inflation risks have intensified.
• Major US banks kicked off the Q1 earnings season this week. Their CEOs’ commentary was uniformly upbeat about the US economy in Q1.
• The March NFIB survey of small business owners suggests that job openings may be bottoming. Hiring intentions have moderated to their long-run average. These readings are consistent with our view that the labor market remains in good shape, with supply and demand roughly in balance.
• The resilience of consumer spending is fully consistent with our upbeat economic outlook. Thanks to the 2025 One Big Beautiful Bill Act, the 2026 tax filing season is delivering a timely boost to consumers’ purchasing power.

I have great respect for Ed, a rare one-handed economist and strategist, but my current reading of Andrew Ross Sorkin’s great book “1929” is keeping me worried amid still expensive equity markets:

Yale professor Irving Fisher, described by the Los Angeles Times as “one of the nation’s leading economists and students of the market,” had become an intellectual celebrity of sorts for his groundbreaking work on monetary theory.

But what people loved most about Fisher was his unwavering, plainspoken optimism. He was not some mealymouthed academic muttering about storm clouds. He was a man who understood the times and spoke with a sense of confidence.

“Stock prices are not too high and Wall Street will not experience anything in the nature of a crash,” stated Fisher on September 5 [1929].

“We are living in an age of increasing prosperity and consequent increasing earning power of corporations and individuals. This is due in large measure to mass production and inventions such as the world never before has witnessed. The rapidity with which worthwhile inventions are brought out is the result of the tremendous research laboratories of our great industrial concerns.”

During other speeches in October, Fisher expressed confidence that productivity would help the  economy:

“Stock prices have reached what looks like a permanently high plateau…I do not feel there will be soon, if ever be, a 50 or 60 point break from present levels, such as [bears] have predicted. I expect to see the stock market a good deal higher within a few months.”

A few days later, Fisher expanded on that belief. “Even in the present high markets, the price of stocks have not yet caught up with their real values,” nor had the market “yet reflected the beneficent effects of Prohibition, which had made American workers more productive and dependable,” (…)

On October 15:

Hoover’s secretary of commerce, Robert P. Lamont also remained resolutely positive. “Industrial and commercial activity during the first nine months of 1929 continued on the same high level which has characterized American business during the past five years,” he said in a statement.

“The output of pig iron and steel ingots, usually regarded as an accurate reflector of industrial conditions, was more than 17 percent greater than in the corresponding period of the preceding year…Automobile production, often used as a measure of consumer purchasing power, was greater than any other similar period. Industrial employment was larger than in the same period of last year, while industrial payroll totals showed considerable expansion.”

In every measure the economy was showing remarkable stability, asserted Secretary Lamont. Like Fisher, he expressed no doubts about the state of America’s financial health. (…)

America’s future, Lamont continued, “appears brilliant…we have the greatest and soundest prosperity, and the best material resources…our great domestic market, our efficiency and our capital supplies make our securities the most desirable in the world.”

Inflation was not a problem in the roaring 1920s. Economists were rather worried about deflation risks.

Banking authorities were concerned by rampant speculation. From the Federal Reserve History:

The Roaring Twenties roared loudest and longest on the New York Stock Exchange. Share prices rose to unprecedented heights. The Dow Jones Industrial Average increased six-fold from sixty-three in August 1921 to 381 in September 1929. (…)

The financial boom occurred during an era of optimism. Families prospered. Automobiles, telephones, and other new technologies proliferated. Ordinary men and women invested growing sums in stocks and bonds.

A new industry of brokerage houses, investment trusts, and margin accounts enabled ordinary people to purchase corporate equities with borrowed funds. Purchasers put down a fraction of the price, typically 10 percent, and borrowed the rest. The stocks that they bought served as collateral for the loan. Borrowed money poured into equity markets, and stock prices soared. (…)

The governors of many Federal Reserve Banks and a majority of the Federal Reserve Board believed stock-market speculation diverted resources from productive uses, like commerce and industry. The Board asserted that the “Federal Reserve Act does not … contemplate the use of the resources of the Federal Reserve Banks for the creation or extension of speculative credit”. (…)

The Federal Reserve decided to act. The question was how. The Federal Reserve Board and the leaders of the reserve banks debated this question. To rein in the tide of call loans, which fueled the financial euphoria, the Board favored a policy of direct action. The Board asked reserve banks to deny requests for credit from member banks that loaned funds to stock speculators. The Board also warned the public of the dangers of speculation.

The governor of the Federal Reserve Bank of New York, George Harrison, favored a different approach. He wanted to raise the discount lending rate. This action would directly increase the rate that banks paid to borrow funds from the Federal Reserve and indirectly raise rates paid by all borrowers, including firms and consumers. In 1929, New York repeatedly requested to raise its discount rate; the Board denied several of the requests.

In August the Board finally acquiesced to New York’s plan of action, and New York’s discount rate reached 6 percent.

The Federal Reserve’s rate increase had unintended consequences. Because of the international gold standard, the Fed’s actions forced foreign central banks to raise their own interest rates. Tight-money policies tipped economies around the world into recession. International commerce contracted, and the international economy slowed.

The financial boom, however, continued. The Federal Reserve watched anxiously. Commercial banks continued to loan money to speculators, and other lenders invested increasing sums in loans to brokers. In September 1929, stock prices gyrated, with sudden declines and rapid recoveries. Some financial leaders continued to encourage investors to purchase equities, including Charles E. Mitchell, the president of the National City Bank (now Citibank) and a director of the Federal Reserve Bank of New York.  In October, Mitchell and a coalition of bankers attempted to restore confidence by publicly purchasing blocks of shares at high prices. The effort failed. Investors began selling madly. Share prices plummeted. (…)

While New York’s actions protected commercial banks, the stock-market crash still harmed commerce and manufacturing. The crash frightened investors and consumers. Men and women lost their life savings, feared for their jobs, and worried whether they could pay their bills. Fear and uncertainty reduced purchases of big ticket items, like automobiles, that people bought with credit. Firms—like Ford Motors—saw demand decline, so they slowed production and furloughed workers. Unemployment rose, and the contraction that had begun in the summer of 1929 deepened. (…)

Today, worries are about inflation, although speculation is very much present.

(AdvisorPerspectives)

This next chart plots the Federal Reserve Margin Loans data which shows lower total margin debt because “it does not fully capture margin-like lending from large bank holding companies to entities like hedge funds.”

The chart, going back to 1965, allows to also plot margin debt against disposable income.

Note the explosion of margin debt (through Q4’25) since the pandemic (FINRA +65%, Fed: +100%). While margin debt is tiny vs income, it’s up 50% since the pandemic and is now in line with the 1999-2008 period of speculative excesses that eventually led to sharp deleveraging (selling) when equity markets turned.

Not a timing tool, but a measure of speculative behavior, warning of the risk if and when fear comes back.

Speculation nowadays is not only seen in margin loan numbers. Here’s a non-exhaustive list of recent “investment tools” offered by your friendly broker:

• Zero-Day Options Tools.
• Leveraged ETFs to potentially gain 2x or 3x exposure to equity markets.
• Single-Stock Leveraged ETFs allowing retail traders to gain 2x or 3x exposure to specific high-momentum companies.
• Event Trading tools to amplify bets on specific binary events, such as earnings reports or Fed interest rate decisions, or just about anything.

During his confirmation hearing last week, Kevin Warsh explicitly criticized QE as a policy that fuels asset price inflation and benefits wealthy asset holders while distorting market signals.

He advocated for a “radical” reduction of the Fed’s $6.7 trillion balance sheet, stating that the central bank’s massive footprint in the bond market distorts financial conditions and creates “market noise” that confuses investors.

He said that the Fed’s communications encourage market participants to over-rely on central bank promises rather than real economic data.

In effect, he wants a radical reduction in liquidity and the elimination of the “Fed put”, both encouraging speculative behavior. FOMC meetings will get lively.

From various recent earnings calls (via The Transcript):

• “The U.S. consumer remains resilient in the aggregate. Consumers are spending more than a year ago, which includes spending more on gas, but they haven’t slowed spending on everything else. Gas represented 6% of our total debit card spend and 4% of our total credit card spend before the rise in oil prices. They now represent 7% and 5% of debit and credit card spend. Note that these numbers are higher for low-income households.” – Wells Fargo CEO Charles Scharf
• “The U.S. economy remained resilient in the quarter, with consumers still earning and spending and businesses still healthy. Several tailwinds are supporting this resiliency, including increased fiscal stimulus, the benefits of deregulation, AI-driven capital investment and the Fed’s asset purchases.” – JPMorgan Chase CEO Jamie Dimon
• “But right now, in the end, the story remains the same, which is resilient consumer that’s doing fine despite higher gas prices.” – JPMorgan Chase CFO Jeremy Barnum
• “Consumer spending has slowed but continues to grow in aggregate.” – M&T Bank Corporation CFO Daryl Bible
• “Consumer spend, core loan demand, and credit delinquency trends all indicate relative stability.” – US Bancorp CEO Gunjan Kedia
• “(…) not only the US but globally, and we’re seeing the consumer quite resilient, very resilient..We haven’t seen an impact on demand since the war started.“ – PepsiCo CEO Ramon Laguarta
• “American consumers remained resilient.” – Citigroup CEO Jane Fraser
• “The U.S. consumer continues to spend through all these different platforms here at Bank of America. (…) For 2025, you can see that it was up 5% from 2024. And that 5% growth has been consistent in the first quarter of ‘26 compared to the first quarter of ‘25. I’m giving what we see today in the spending, even in early April here.” – Bank of America CEO Brian Moynihan
• “So when you look through spending patterns, growth in savings, activity levels, loan growth, like everything we see day-to-day in our business is almost at complete odds with the surveys you see on confidence.” – PNC Financial Services CEO William Demchak

With delayed stats, anecdotal evidence helps fill the gaps. Bank executives were all reassuring on the consumer and the economy last week.

I was particularly interested to read BofA’s Moynihan saying that spending on the bank cards was up 5%+ YoY in Q1 and in early April. That’s a nominal, not real, 5% YoY growth rate

That jibes with the official spending data through February.

NOMINAL DISPOSABLE INCOME AND SPENDING GROWTH

But while spending was resilient, income growth kept decelerating, reaching 3.9% YoY in February.

Since 1980, the correlation between nominal disposable income and expenditures is 99.8% and it has barely changed since the pandemic.

The same is true in real terms …

REAL DISPOSABLE INCOME AND SPENDING GROWTH

… although the 1.1% YoY February advance in real disposable income is worrisome since it very rarely happened in the 60 years of the data’s history (through 2019):

The income components have been slowing in recent months. Employment growth has nearly stalled while wage growth has slowed below 4.0%, perhaps below 3.5%.

Meanwhile, inflation, which was already perking up before the US-Israel attacked Iran, will no doubt get closer to 3.5% in coming months

“…the impact of higher oil prices will likely take some time to materialize…We have seen historically that it often takes consumers several months to reduce their spend levels on other categories to adjust for higher oil prices.” – Wells Fargo CEO Charles Scharf

But it’s not just oil prices:

“The good old days are gone,” said Christopher Tang, a professor at the UCLA Anderson School of Management who studies global supply chain management. “Right now we see the gasoline prices going up, but that is only part of the story. Everything will be more expensive.” (…)

Oil is not only important to gasoline and jet fuel but also a critical part of the chemical production process for products such as pharmaceuticals and fertilizers. That affects the cost of necessary supplies including prescription drugs and groceries.

Along with oil prices, diesel and fertilizer prices are also rising, which are critical to farming. That makes both the cost of growing crops and raising livestock more expensive, said Christopher Wolf, a professor of agricultural economics at Cornell University. (…)

Last week, the Independent Grocers Alliance said in a statement that a 10-15% rise in fuel prices could in turn raise food prices by 2-4%. While the alliance acknowledged the impact of rising logistics costs on food prices in the short term, the brunt of the effects are anticipated by mid-summer. (…) (The Guardian)

Fertilizer Crunch Looms (Forbes)

In the first week of the war, the price of urea — the nitrogen-rich compound that is the foundation of most crop fertilizers — jumped 30% at the import hub of New Orleans, according to the Fertilizer Institute. By mid-March, Fortune was reporting a 35% spike from pre-war levels. Individual spot prices have reportedly reached $850 a ton.

One major problem is that according to Agriculture Secretary Brooke Rollins roughly 25% of farmers had not purchased fertilizer for the planting season when the war began – now they face a 30-35% price increase. (…)

When the Strait of Hormuz closes, the world’s fertilizer supply chain doesn’t just get more expensive. It gets structurally disrupted.

I ran the math on what this triple shock — fuel, packaging and fertilizer — actually costs the consumer, starting with that bag of lettuce.

1. Transportation increase per bag (shelf price): +$0.09
2. Packaging resin increase per bag (shelf price): +$0.02
3. Total Iran war increase per bag: ~$0.11
4. Bags of bagged lettuce/salad sold annually in the U.S.: ~1.7 billion
5. Total added annual cost to U.S. consumers (lettuce only): ~$187 million

Eleven cents. It doesn’t sound like much. But lettuce is one item. There are roughly 40,000 SKUs in the average U.S. supermarket. Apply the same fuel and packaging math across every perishable item in a shopping cart — fresh vegetables, dairy, meat, deli, bread — and the Iran war adds an estimated $85 to $120 to the average American household’s grocery bill just on perishables. And that is if the war ends relatively quickly. If it goes on for six months or more, those numbers will grow substantially.

And that figure doesn’t yet include the fertilizer shock. That one hasn’t shown up at the grocery store yet. It’s still in the ground. (…)

The crop that concerns me, and the food industry, the most is corn. Corn consumes 78% of all nitrogen fertilizer applied to U.S. crops. Fertilizer represents 33 to 44% of a corn farmer’s total operating costs. Analysts are already projecting that up to 1.5 million acres may shift from corn to soybeans this spring, as farmers find they simply cannot pencil out the economics.

Here is why that matters to every shopper, not just farmers: Corn is the infrastructure of the U.S. food supply. It feeds the beef cattle, the hogs and the chickens. It becomes the corn syrup in thousands of processed food products. It fuels the ethanol that blends with gasoline. When corn gets expensive, or when less of it gets grown, the price shock echoes through every protein counter and center-store aisle in the country. (…)

The Fertilizer Institute’s own chief economist, Veronica Nigh, said consumers will face more cost pass-through from this crisis than anything we have seen before. (…)

Food prices in the United States are already 24% above pre-Covid levels. The American consumer has been absorbing cost after cost for five years. The Iran war is not an isolated event landing on a resilient economy. It is landing on a food system and a consumer base that have very little cushion left.

Speaking of cushion, the personal savings rate was 4.0% in February.

A “little excursion” to Iran! Gosh, the world is so complicated, and it may not be as resilient as many think.

BTW:

The US-Israel war on Iran is creating the worst energy crisis ever faced by the world, the head of the International Energy Agency (IEA), which advises 32 member countries on energy supply and security, said.

“This is indeed the biggest crisis in history,” Fatih Birol told France Inter radio in an interview broadcast this morning.

“The crisis is already huge, if you combine the effects of the petrol crisis and the gas crisis with Russia.”

Birol has said it will take about two years to recover the energy ​output lost in the Middle East from the war there. (The Guardian)

BTW #2:

Growing consumer stress is on display in the automobile finance realm. A Monday report from Edmunds finds that 30.9% of trade-ins towards new vehicle purchases carried negative equity (i.e., the remaining loan balance exceeds the value of the car) over the three months through March, the second-highest quarterly reading on record. The average amount owed on those underwater trade-ins reached $7,183, up 42% over the past five years.

Alongside elevated new auto prices – average transactions reached nearly $50,000 in February according to Kelley Blue Book, up from sub-$40,000 pre-pandemic – extended borrowing periods drive that dynamic.  In the first quarter, 90.2% of negative equity trade-ins carried loan terms of at least 72 months, with the average length topping 77 months compared with 70.3 months for all new vehicle trade-ins.

Average borrowing costs for those underwater borrowers stood at a 7.9% annual percentage rate, 100 basis points above the broader baseline, while the average age of a negative equity trade-in vehicle reached a record 4.3 years. “Consumers are holding on longer but still can’t outrun their debt,” Edmunds head of insights Jessica Caldwell writes.

Indeed, just below 7% of all subprime auto loans across the U.S. were at least 60 days delinquent over the first two months of the year according to Fitch Ratings, the highest levels on record dating to the early 1990s (that metric topped out at just above 5% in early 2009). 

Over the same period, the 60-day delinquency rate among prime borrowers reached 0.425%, a nine-year high and double that seen in summer 2022.  Risk premiums, meanwhile, on triple-B-rated auto loans packaged into asset backed securities widened to 145 basis points over Treasurys, analysts at JPMorgan found late last week, from 120 basis points at the end of February. (ADG)

Canada’s inflation rate hits 2.4% in March as war fuels highest monthly gas-price increase on record

The annual inflation rate hit 2.4 per cent last month, accelerating from 1.8 per cent in February, Statistics Canada reported Monday in its Consumer Price Index report.

Prices at the pump surged by 21.2 per cent in March from February, the largest monthly increase recorded by Statscan. Excluding gas, the CPI rose by an annual 2.2 per cent in March, compared with 2.4 per cent in February. (…)

Food costs rose 4.4 per cent year-over-year in March, up slightly from February’s rate increase. The price of fresh vegetables saw the largest increase since August, 2023, rising 7.8 per cent from a year earlier.

Economists expect April’s inflation rate to rise again, to around 3 per cent. (…)

The central bank’s quarterly business and consumer surveys published Monday showed that near-term inflation expectations have risen in response to the Middle East conflict. However, longer-term inflation expectations – the key concern for the central bank – remain relatively subdued.

The business survey took place before the outbreak of the war. Follow-up calls by the central bank found that businesses in “upstream” segments of the value chain – agriculture, oil and gas, manufacturing and transportation – have already experienced cost increases. Some companies further down supply chains expect input costs to rise in the coming months.

At the same time, businesses reported constraints on their ability to pass rising input costs along to customers. A weak demand environment, constrained consumer budgets and elevated competition all make it difficult to raise prices.

A humanoid robot sprints past the human half-marathon world record

A humanoid robot that won a half-marathon race for robots in Beijing on Sunday ran faster than the human world record in a show of China’s technological leaps.

The winner from Honor, a Chinese smartphone maker, completed the 21-kilometer (13-mile) race in 50 minutes and 26 seconds, according to a WeChat post by the Beijing Economic-Technological Development Area, also known as Beijing E-Town, where the race kicked off.

That was faster than the human world record holder, Uganda’s Jacob Kiplimo, who finished the same distance in about 57 minutes in March at the Lisbon road race.

The performance by the robot marked a significant step forward from last year’s inaugural race, during which the winning robot finished in 2 hours, 40 minutes and 42 seconds.

But the competition, which was held alongside a race for humans, wasn’t without hiccups — one robot fell flat at the start line, another bumped into a barrier.

Du Xiaodi, Honor’s test development engineer, said its robot was equipped with what he called a powerful liquid-cooling system, which was largely developed in-house.

“Looking ahead, some of these technologies might be transferred to other areas. For example, structural reliability and liquid-cooling technology could be applied in future industrial scenarios,” he said.

Beijing E-Town said about 40% of the robots navigated the course autonomously, while the others were remotely controlled. (…)

State broadcaster CCTV reported that the runners-up, which were also from Honor and used autonomous navigation, finished the race in about 51 minutes and 53 minutes respectively. A robot served as a traffic officer to direct the participants with its arm gestures and voice, CCTV added. (…)

London-based technology research and advisory group Omdia recently ranked three Chinese companies — AGIBOT, Unitree Robotics and UBTech Robotics Corp. — as the only first-tier vendors in its global assessment for shipment numbers for general-purpose embodied intelligent robots.

They all shipped more than 1,000 units of the robots last year, with the first two companies shipping more than 5,000 units, the report said.

Link to the video.