The market rallied yesterday partially because the Census Bureau released strong retail sales data for March. Retail sales increased by 1.1% from February and 3.8% over the prior year. These are good numbers which support the argument that the economy did bounce back after a weak winter.
Still, it’s tough to say how much of the bounce was just demand from January and February that was pulled into March (vs. true strength in March). If you combine the three months, the March bounce was not enough to overwhelm the winter lull and carry strong growth for the full period.
For the full first quarter, retail sales only grew by 2.5% over the previous year, which is near the slowest three month growth rate since the recovery began. Factoring in this morning’s CPI data, inflation adjusted retail sales probably grew only about 1.1% for the first quarter versus the first quarter of 2013.
It’s good to see the bounce back in March, but the data is still fuzzy until we get a clearer picture of April. Past that, we start to get into seasonally weak months for the economy, which could further cloud the outlook. When the outlook is cloudy, psychology has an even greater influence on the interpretation of the data. For now the market is giving the economy the benefit of the doubt, but psychology can change quickly.
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