Shoppers shrugged off worries about higher gas prices and treated themselves at the mall last month. Retailers from Costco to Victoria's Secret reported surprisingly good sales Thursday, and analysts said people would have spent even more but for the late Easter.
It is the latest better-than-expected economic report. The private sector added more than 200,000 jobs in February and March, and the unemployment rate has fallen more than a full percentage point, to 8.8 percent, in just four months.
Consumer spending makes up 70 percent of the economy and is critical to the recovery. The more shoppers spend, the more companies feel good about increasing production, which means adding workers, who spend money.
There are signs the cycle is taking off. Ajay Banga, the CEO and president of MasterCard Inc., said there's "something changing" in American spending habits.
"The 90 percent of the people who are employed ... no longer believe that their jobs are at risk," Banga said. "And their willingness to spend has changed compared with six or nine months ago ... when there was a fear."
Overall, revenue at major retailers rose 2 percent over March 2010, according to the International Council of Shopping Centers. Many analysts had expected it to be flat or to decline slightly. The figures are based on stores open at least a year.
The increase is better than it looks because Easter falls on April 24 this year, three weeks later than last year. Had it fallen in March, retailers' results might have been three to five percentage points better because of holiday spending, analysts say.
There's still plenty for retailers to worry about. Gas now averages more than $3.50 a gallon in almost every state, and food keeps getting more expensive. But "jobs rule, and that is what is determining the underlying strength," said Michael P. Niemira, the chief economist at the International Council of Shopping Centers.
Other factors worked against stores. The earthquake, tsunami and nuclear crises in Japan took a toll on Gap Inc., which has more than 150 stores there. It reported a decline that was worse than expected and warned of disappointing earnings. Clothing sellers are starting to raise prices to offset soaring costs for labor in China and for raw materials such as cotton.
Americans have more money to spend because of a two-percentage-point cut in the Social Security payroll tax, which will provide most households an additional $1,000 to $2,000 this year. The IRS had paid out $206 billion in tax refunds through March 25, 1.1 percent more than at the same point last year.
Even so, consumers surveyed in March for the Conference Board's consumer confidence index voiced concerns about inflation and stagnant incomes.
Niemira said price increases, especially for food, might have helped revenue at discount stores. Most increases in clothing prices haven't been passed on to consumers yet.