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Don't let nonexistent wage growth get in the way of an opportunity to spend. Retail sales jumped in March, outpacing expectations and even the numbers for snowbound February were revised higher. Just to set the stage, household incomes aren't growing, unemployment is at 9.7 percent and consumers are ramping up spending. And to think some forecasts called for the savings rate to reach double digits. Please!
The party isn't going to end on account of interest rates or inflation anytime soon (although that will eventually be the case). The Consumer Price Index barely registered for March with the headline CPI up 0.1 percent and core prices unchanged. The headline CPI, while up 2.4 percent year-over-year is up just 0.8 percent in the past six months and 0.2 percent in the past three months. So the Fed still has more excuse to keep rates at record lows. Ben Bernanke speaks to the Joint Economic Committee in Congress this morning and he will undoubtedly stick to the well-worn script of "we don't see inflation, we're not sure the economic recovery is sustainable, housing is still weak, so we need to keep rates low." That means continued pain for savings accounts, certificates of deposit and other fixed income instruments.
Bankrate.com recently commissioned a national poll and found 26% of Americans will spend their refund on necessities, with another 7% saying they're going to splurge on a vacation or shopping spree. So that's 1/3 of people saying they intend to spend it, which is most certainly on the low side. Many of those intending to pay down debt or save the money will instead fritter away at least a portion of it.
Retail sales typically jump around a lot month to month - even in the best of economic times. Between tax refunds and stagnant household incomes, I agree with you that it isn't sustainable.
Greg - I am wondering how much the influx of tax refunds into individuals' bank accounts may have boosted retail sales? After feeling like we're getting financially trounced over the past year, a sudden check for 2500 bucks would certainly make a lot of folks go out and make purchases they've been putting off. But it's not sustainable.