By Sharon Nunn 

WASHINGTON -- Retail sales in the U.S. bounced back in March after a stretch of weak spending, another sign that first-quarter growth was stronger than expected.

The fresh data Thursday, on the heels of stronger-than-anticipated U.S. exports and economic growth in China, pushed up estimates for gross domestic product in the first part of the year and expectations for a second-quarter boost.

"Overall, the retail sales figures add to the slightly more positive tone of the recent data and provide some comfort that the economy isn't falling off a cliff," Andrew Hunter, senior U.S. economist at Capital Economics, said in a note to clients.

Retail sales had dropped in February, after a jump in January that hadn't fully offset a sharp decline in December. In March, by contrast, the gauge of spending at restaurants, bricks-and-mortar establishments, and online stores increased a seasonally adjusted 1.6% from a month earlier to $514.1 billion, the Commerce Department said. This was the largest monthly gain since September 2017. Economists surveyed by The Wall Street Journal expected a smaller 1.0% jump in sales.

Outlays on cars and car parts, along with spending at gas stations, propelled overall spending in March, with auto sales clocking the heftiest month-on-month gain since last fall. In addition, gas prices have risen recently, which increased the amount consumers spent at gas stations.

But even when removing auto-related spending from the mix, consumer spending still grew a solid 0.9% in March, higher than the 0.7% gain economists expected for this underlying measure.

Last month's consumer spending gain was broad-based, with sales growing for every major type of store except the category for sporting goods, books and hobbies. Outlays at furniture shops and clothing stores grew at the fastest pace in almost a year.

Analysts suggest tax refunds could have had an impact on the recent data, perhaps delaying spending that typically would have happened earlier in the quarter.

Through March 29, the Internal Revenue Service paid out slightly less in tax refunds from the equivalent period in 2018. This is partly because this year's tax season has been slower than usual, an effect of the partial government shutdown and the new tax law. Also, a slightly smaller percentage of tax filers were getting refunds. And finally, the average refund for that period was down 0.7%.

Although most households are getting tax cuts and overall refund patterns have barely changed, individual households may have been surprised -- in both directions -- by variations in their refunds or the amount of taxes they owe. Particularly for low-income households, refunds drive consumer spending.

Thursday's report was released the day after official estimates of economic output in China were stronger than expected in the first quarter, and the Commerce Department's latest trade data showed the U.S. deficit in goods and services narrowed in February from the prior month, largely due to a pickup in exports. The smaller deficit suggested higher economic growth, which led analysts to raise their GDP measures for the first quarter.

After the retail-sales report, forecasting firm Macroeconomic Advisers upped its gross domestic product growth prediction again, to a 2.7% annual rate in the first quarter from 2.4%. J.P. Morgan lifted its growth projection to a 2.9% pace from its previous 2% estimate, and Oxford Economics revised its forecast to 1.9% from 1.0%.

The stronger showing from consumers also boosted expectations for the quarter that began in April.

"An upside surprise in the last month of a quarter has a limited ability to pull up the quarterly average, but it is usually a more powerful boost to the next quarter," said Stephen Stanley, chief economist at Amherst Pierpont Securities.

For months, analysts thought growth in the first quarter would be substantially lower than the fourth quarter's 2.2% rate, as stimulus from the late 2017 tax cuts and higher government spending in 2018 faded, while a partial government shutdown in December and January crimped consumers and businesses. The Federal Reserve raised interest rates through the end of last year, another potential damper.

But even if the growth rate in the first quarter is higher than expected, economists said they see a longer-term slowdown from 2018's 2.9% pace, particularly since business investment has slowed. The Fed's forecast in March for growth in 2019 as a whole was 2.1%. Other headwinds for the economy include trade uncertainty and Brexit negotiations.

The retail sales data "don't change our view that the fading of the fiscal boost and the lagged impact of the Fed's monetary tightening will push GDP growth below its 2% potential pace over the coming quarters," Mr. Hunter of Capital Economics said in his note Thursday.

More broadly, analysts said, the U.S. economy should be poised to support solid consumer spending in the coming months, as employers continue churning out jobs and the tight labor market induces faster wage growth and higher consumer confidence.

--Richard Rubin contributed to this article.

Write to Sharon Nunn at sharon.nunn@wsj.com

(END) Dow Jones Newswires

April 18, 2019 13:14 ET (17:14 GMT)

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