- Retail sales fell 0.2% (m/m) in February, disappointing expectations for a 0.2% gain. On a more positive note, January’s headline print was revised up 0.5 percentage point to 0.7%. All told, limited headway has been made over the last several months, with overall sales still near June 2018 levels.
- Sales improved in three of the four more volatile categories. Strongest month-on-month gains were recorded in autos & auto part dealers (+0.7%), and at gasoline stations (+1%) reversing some of last month’s weakness. After a few weak months, sales at food services and drinking places rose a modest 0.1% in February. On the other hand, receipts at building materials, garden equipment & supply dealers fell -4.4%, fully reversing January’s gain.
- Excluding the above categories (gas, autos, building materials, and food services), sales in the so-called ‘control group’ used in calculating GDP also fell 0.2% in February. Receipts fell in six of the nine categories in the control group, with declines between -0.3% (general merchandise) and -1.6% (miscellaneous). Health (+0.6%), sporting goods (+0.5%), and non-store retailers (+0.9%) continued to build on last month’s gains. On a more positive note, sales in the control group were bumped up 0.1 and 0.6 percentage points in December and January, respectively.
Key Implications
- With the end of the government shutdown in late January, Americans were expected to return to malls and store in slightly better spirits. But, the miss on the sign in today’s headline print (-0.2% vs. +0.2%) seems like a cruel April Fool’s joke. The silver lining in today’s report were the sizable upward revisions to January, both to overall and control-group sales.
- Today’s report leaves the tracking for first quarter consumer spending broadly unchanged at between 0.5% and 1% (annualized). First-quarter consumption has tended to come in soft over the last few years, with ‘residual seasonality’ likely playing a role. After layering on the negative effect of the government shutdown, this year’s first-quarter weakness is really no surprise.
- A robust labor market should continue to shore up spending in the months ahead, with large payroll gains expected to make a comeback in March (data to be released this Friday). A notable pullback in interest rates recently and a steady Fed, will be an added tailwind. In this vein, while potential potholes, such as trade skirmishes, could weigh on confidence and spending plans, consumption should cruise at slightly above 2% annualized pace in the second half of this year, with the deceleration relative to last year’s pace reflecting a fading boost from tax cuts.
