WASHINGTON - American consumers, who kept shopping through rising fuel costs and delayed tax refunds, will probably continue buoying the world’s largest economy as these hurdles dissipate.
After reaching a four-month high in February, gasoline prices have retreated in March at a time when they typically rise. Cash returns from the Internal Revenue Service, held up when an agreement to avert the fiscal cliff came at the last minute, have almost caught up to last year’s pace.
“Headwinds in February were temporary,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York. “They are going to be tailwinds in March.”
Economists are boosting spending estimates as retailers from Darden Restaurants Inc. to Ross Stores Inc. say industry sales are picking up. Employment gains, the drop in energy costs, rising stock prices and reduced debt mean households have the wherewithal to overcome a payroll-tax increase that took an additional 2 percent out of take-home pay this year.
“You’re seeing an improving trajectory in the labor market, which means stronger aggregate wages and salaries, and that’s going to be good for consumer spending,” Dutta said.
Stocks fell today, erasing gains after the Standard & Poor’s 500 Index rose to within a point of its record high, as enthusiasm about Cyprus’s bailout faded. The S&P 500 dropped 0.4 percent to 1,550.99 at 11:22 a.m. in New York.
Spending projections climbed after a Commerce Department report this month showed retail sales jumped 1.1 percent in February, the biggest gain in five months. Eight of 13 major categories showed an increase in receipts, including auto dealers, building-material stores and Internet merchants.
The median estimate among the 30 forecasters who submitted consumer-spending projections after the retail sales data called for a 1.8 percent increase this quarter, according to a Bloomberg survey taken from March 8 to March 13, compared with a median of 1.4 percent for all those polled in February.
Retail sales rose in February even as gasoline prices climbed and tax refunds were delayed. A reversal of those challenges this month has brightened the outlook.
Last month saw the highest average gasoline price for any February since AAA, the largest U.S. automobile group, began tracking data in 2004.
A drop this month will have added significance because the fuel’s cost usually rises in March, making the current decline even bigger when the figures are adjusted for seasonal variations. The average price of regular gasoline at the pump fell 2.8 percent through March 24, compared with a 5.2 percent gain for the month on average over the past five years. Since 2005, the cost has not declined in March.
Assuming other costs keep rising at a similar pace as they have been and taking into account accelerating food expenses, the drop in gasoline will be enough to cause the consumer-price index to decrease “slightly” in March and April, according to a March 15 analysis by JPMorgan Chase & Co. economist Daniel Silver in New York. The CPI jumped 0.7 percent in February, the first gain in four months, paced by the biggest increase in gasoline prices in more than three years, Labor Department figures show.
What’s more, the current level of gas prices won’t hamper demand for other goods and services as much as in the past because households are buying more fuel-efficient vehicles, driving fewer miles and opting to carpool more often, said Omair Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut.
“If you look at the last three or four or five years, consumers have adjusted to these elevated gas prices,” Sharif said. “We’re at the point where higher gas prices are less of a concern than they used to be.”