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13 Mar 2014
North America Economic Research
Retail sales report implies weaker Q1 consumption

 
 
February retail sales increased a trend-like 0.3% for the headline, ex-auto, and ex-auto, gas and building material categories. This outcome was a touch better than expectations, though was coupled with significant downward revisions to December and January. The net result is to take our tracking of real consumer spending growth in Q1 from 2.4% annualized before the report, down to 2.1% after the report. Today's data also make it somewhat harder to square the consumer spending step-down with a predominantly weather-driven story: February was the most unseasonably cold month of the winter, yet had the best retail sales outcome since October. Sales in the retail control category (ex-autos, gas and building materials) were revised down in December by 0.2%-point, to 0.1%, and revised down in January by 0.3%-point, to a rather weak -0.6%. The more normal February outcome suggests that the retail soft patch which began in November may be coming to an end. We are leaving our Q1 GDP tracking at 2.0%, though today's retail sales number adds further downside risk to that call.
 
The details of the February outcome showed mixed results across retail categories -- decent gains for sporting goods and personal care stores, and weakness at electronics and grocery stores (the 0.3% gain in restaurant sales was actually pretty respectable given the cold conditions). With the revisions, January now looks weak across the board. While weather often gets singled out for that disappointment, we think the reduction in disposable income with the expiration of extended unemployment benefits may be more to blame. Sales at internet stores -- normally quite resilient to weather effects -- fell 1.7% in January, the second worst outcome since the end of the recession. Internet sales are reported with a one-month lag. For the most recent month (in this case February) only the broader category "nonstore retailers" are reported, which is primarily internet and fuel dealers. Not surprisingly fuel dealers do well in colder months. Last month non-store retailers could account for about 70% of the increase in retail control sales, so while the control number printed a pretty bland 0.3%, under the surface, weather may have subtracted from that number, through less consumer discretionary spending, and supported that number, through higher heating fuel sales.
 
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