Retail and food services sales rose just 0.2% month-on-month (m/m), disappointing expectations for a stronger rebound following January’s contraction. Data revisions also expanded January’s contraction to -1.2% m/m from the initially reported 0.9% decline.
Vehicle and parts sales fell for the second consecutive month, weighing on the headline (-0.4% m/m). Sales at gasoline stations also posted a sizeable decline, falling by 1% from the prior month. Building materials and equipment stores’ sales edged slightly higher (+0.2% m/m), posting the first gain since September 2024.
Sales in the “control group”, which the excludes volatile components above (i.e., gasoline, autos and building supplies) fared much better than the headline, increasing by 1% on the month, fully reversing January’s drop.
Online sales rebounded 2.4% on the month, but sales were mixed across brick-and-mortar retailers. The largest gains were in health & personal care stores (+1.7% m/m). Sales also increased at food and beverage stores (+0.4% m/m) and general merchandise stores (+0.2%). On the other hand, February marked the second consecutive month that sales declined at the clothing and accessories stores (-0.6%) and sporting goods & hobby stores (-0.4% m/m).
Sales at bars and restaurants posted a large decline, falling by 1.5%, extending the disappointing performance in this category to three consecutive months.
Key Implications
The rebound in the total retail sales was soft, but the gain in core sales was more robust, entirely reversing the January’s pullback which was likely influenced by inclement weather across much of the U.S. Still, the yo-yo like movements in the last couple of months leave core retail sales with little progress, stuck at the same level they were back in December of 2024. As a result, we expect real consumer spending to lose momentum in Q1, expanding by just 1.5% (annualized), less than half its pace in the fourth quarter of 2024.
For the year as whole, consumer spending is expected to be much softer. U.S. consumers are getting nervous about the intensifying trade fight which is fanning flames consumer anxiety about inflation. As a result, households’ confidence rapidly deteriorated in recent months. The University of Michigan’s index of consumer confidence showed year-ahead inflation expectations jumping to 4.9% in March, up from 4.3% in February and 2.8% in December 2024. This is the highest level since November 2022, when core PCE inflation was running north of 5%. Even as the labour market continues to hold up reasonably well and household wealth is still significant, the drop in sentiment will likely manifest in weaker spending over the coming quarters.
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