Strong March retail sales added fuel to U.S. stocks on Thursday morning as more people got back to work.
According to the Department of Commerce, retail and food services sales for March were $619.1 billion, up 9.8% from February and 27.7% a year earlier. It is the most significant increase since May 2020, beating the consensus market forecast of 5.9%.
Clothes, food, beverages and sporting goods led to the sales gains, followed by increases in the bar and restaurant sales and motor vehicle parts, as consumers began spending stimulus checks.
Meanwhile, a labor market report showed that more Americans got back to work. Initial unemployment insurance claims dropped to 576,000 for the week of April 10, from 769,000 in the previous week.
The brightening of the labor market, which has been aided by the rapid rollout of Covid-19 vaccinations and the opening of the U.S. economy, could give a boost to American households' income.
Higher incomes, in turn, could add momentum to retail sales, setting the U.S. economy into a virtuous cycle of growth.
That's good news for equity investments, as more robust sales translate to higher top and bottom lines and rising share prices.
The news of strong retail sales and an improving labor market sent major U.S. equity indexes to new highs on Thursday. At 11 a.m., the S&P 500 was at 4,160.80, up 0.86% from the previous close, while the Dow Jones was at 33,980.60, up 0.74%. The Nasdaq composite was at 14016.60, up 1.14% from Wednesday's close as tech shares regained momentum.
Still, investors should not be getting overexcited about the improving economic numbers. A strong economy is raising the risks of inflation, as evidenced by recent government reports showing that prices have been edging higher, both at the wholesale and retail levels.
Higher inflation could, in turn, prompt the Federal Reserve to raise interest rates sooner than later, spoiling the Wall Street party.
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