Washington
CNN
—
Americans rushing to buy goods ahead of President Donald Trump’s sweeping tariffs likely gave March retail sales a boost. But economists warn that strength will probably fade as tariffs eventually fuel price increases.
The Commerce Department is set to release March retail spending data at 8:30 a.m. ET on Wednesday, a potential glimpse into how Americans are reacting to the barrage of news on tariffs and other economic measures. Consumer spending powers the vast majority of the US economy, and retail sales make up about a third of that.
Americans probably raced to the stores in March, especially for big-ticket items that could see big price jumps because of Trump’s import taxes, economists said. And that could happen again in April. But those kinds of brief buying sprints make it harder to understand the financial situation of many Americans. This, in turn, makes it harder for economic stewards, such as the Federal Reserve, to plan their next move.
“In the near term, we could have some really strong consumer spending numbers, but that just makes things a little bit tricky for the Fed,” James Knightley, chief international economist at ING, told CNN. “That means that the Fed just sits and waits to see what happens.”
Economists polled by FactSet estimate that retail sales spiked 1.3% in March from the prior month, which would be the strongest monthly gain since January 2023. The figures are adjusted for seasonal swings but not inflation.
A real-time estimate by the Federal Reserve Bank of Chicago also points to a strong showing in March, estimating that spending on retail and food services, excluding purchases of cars, was up 1.2% on a monthly basis. After adjusting for inflation, that figure is even higher, at 1.6%.
Commerce Department data showed that February retail sales came in much weaker than expected, advancing 0.2% after a sharp drop in January because of unusually harsh cold weather.
Americans’ attitudes toward the economy have been down in the dumps due to the Trump’s administration’s whipsawing trade policy, according to the University of Michigan’s latest consumer sentiment survey, among other surveys. Fed officials have taken notice of America’s souring economic mood, but the central bank is specifically tasked by Congress to help drive employment and stable prices. And it is unclear how souring consumer sentiment will translate into spending, and then eventually into both hiring and prices.
But Trump’s tariff are widely expected to cause both inflation and unemployment to ratchet higher, putting the economy on a path toward “stagflation” — a scenario of stagnant or negative growth and rising unemployment coupled with accelerating prices.
“A tariff is like a negative supply shock. That’s a stagflationary shock, which is to say it makes both sides of the Fed’s dual mandate worse at the same time,” Chicago Fed President Austan Goolsbee said last week at an event in New York. “Prices are going up while jobs are being lost and growth is coming down, and there is not a generic playbook for how the central bank should respond to a stagflationary shock.”
So far, Trump has imposed 25% tariffs on aluminum and steel; 25% tariffs on goods from Mexico and Canada that aren’t compliant with a free-trade agreement among the countries; a massive 145% duty on Chinese imports; a 25% tariff on cars, with separate tariffs on auto parts coming at a later date; and a 10% baseline tariffs on all US imports.
A massive tariff hike on dozens of countries briefly went into effect on April 9, though Trump swiftly delayed the tariff hike that same day until July. He also introduced temporary exemptions for some electronic goods, and he has said separate tariffs are likely coming down the pike on semiconductors, pharmaceuticals, copper and timber.
