U.S. retail sales increased more than expected in March amid a surge in receipts at online retailers, further evidence that the economy ended the first quarter on solid ground.

The report from the Commerce Department on Monday, which followed news this month of robust employment gains in March and a pick-up in consumer inflation, bolstered expectations that the Federal Reserve could delay cutting interest rates until September. Some economists see the window for lowering rates this year closing.

Strong retail sales prompted economists at Goldman Sachs to boost their gross domestic product (GDP) growth estimate for the first quarter to a 3.1% annualized rate from a 2.5% pace. The economy grew at a 3.4% rate in the fourth quarter.

“The stronger economic activity remains, the slower inflation declines and the later the Fed responds with rate cuts,” said Kathy Bostjancic, chief economist at Nationwide. “The lack of moderation in consumer spending and inflation … could push off rate reductions to next year.”

Retail sales rose 0.7% last month, the Commerce Department’s Census Bureau said. Data for February was revised higher to show sales rebounding 0.9%, which was the largest gain in just over a year, instead of the previously reported 0.6%.

Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, would rise 0.3%. Sales jumped 4.0% on a year-on-year basis in March.

Despite higher inflation and borrowing costs, spending is continuing to hold up, confounding predictions of distress among lower-income households, thanks to the resilient labor market.

The latest Bank of America credit card data showed lower-income spending continues to outpace higher-income spending.

“An important reason is that, although lower-income consumers have been disproportionately affected by inflation, they have also been the biggest beneficiaries of the robust labor market,” economists at Bank of America Securities wrote in a note. “Lower-income workers have seen the largest cumulative wage gains since the start of the pandemic.”

Job gains averaged 276,000 per month in the first quarter, compared to 212,000 in the October-December period. Wage growth remains above 4.0% on a year-on-year basis.

Financial markets and most economists have pushed back their expectations for the first rate cut to September from June, and anticipate two rate cuts instead of the three envisaged by policymakers. A few economists believe the U.S. central bank could still initiate its easing cycle in either June or July.

The Fed has kept its policy rate in the 5.25%-5.50% range since July. It has raised the benchmark overnight interest rate by 525 basis points since March 2022.

“A June cut is not out of the question, but the balance of risks is tilting toward the first rate cut coming later in the year,” said Michael Pearce, deputy chief U.S. economist at Oxford Economics.

Stocks on Wall Street were trading largely higher, with investors keeping a wary eye on the Middle East. The dollar rose against a basket of currencies. Prices of U.S. Treasuries fell, with the yield on the benchmark 10-year note hitting a five-month high.

Sales last month were boosted by a 2.7% acceleration in online receipts, which followed a 0.2% gain in February. Amazon held a spring sales promotion last month.

Sales at gasoline stations rose 2.1%, reflecting higher prices at the pump. Building material and garden equipment store sales advanced 0.7%. Sales at food services and drinking places, the only services component in the report, rose 0.4% after climbing 0.5% in February. Economists view dining out as a key indicator of household finances.

But there were pockets of weakness. Receipts at motor vehicles and parts dealers fell 0.7%. Furniture store sales slipped 0.3%, likely as higher mortgage rates constrain home purchases. A survey from the National Association of Home Builders on Monday showed confidence among single-family homebuilders was unchanged in April.

Sales at sporting goods, hobby, musical instrument and book stores dropped 1.8% last month. That suggests households continue to focus on essentials and are cutting back on discretionary spending.
Receipts at electronics and appliance outlets decreased 1.2%, while those at clothing retailers fell 1.6%.

Retail sales excluding automobiles, gasoline, building materials and food services increased 1.1% in March – the biggest gain since January 2023. Data for February was revised higher to show these so-called retail sales gaining 0.3% instead of the previously reported unchanged reading.

Core retail sales correspond most closely with the consumer spending component of GDP. The jump in core retail sales in March and the upward revision in February erased the dip in January and led economists to expect that growth in consumer spending in the first quarter probably matched the fourth quarter’s brisk pace of 3.3%.

That estimate does not take into account services, the biggest component of consumer spending, leaving an upside risk to both spending and GDP growth in the January-March quarter.

The growth picture was further brightened by other data from the Census Bureau showing business inventories rose 0.4% in February after being unchanged in January.

“Given the various stimulus programs have stopped and money from them has been spent, consumer spending now rests firmly on incomes from paychecks, which continue to expand along with the labor market,” said Robert Frick, corporate economist at Navy Federal Credit Union. “This means a solid expansion should continue.”