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Retail sales excluding gasoline rebounded from winter storms, rising a strong 0.6% in February. Motor vehicle sales jumped 1.2%, since customers could get to outdoor car lots again. Even excluding vehicles, sales rose a robust 0.4%, the strongest in six months. Weather-related rebounds were noticeable in clothing, health & personal care, sporting goods, and department stores. Restaurant activity ticked up, and e-commerce, electronics & appliances, building materials, and miscellaneous sales advanced. Only furniture and grocery stores showed a decline. March sales data will be released April 21, as the Census Bureau is still in catch-up mode after last year’s federal government shutdown.
Spending on services excluding dining rose a strong 0.8% in January. (January is the latest month for which services spending data other than dining are available. February data will be available on April 9.)
Going forward, inflation will skew nominal sales upward in certain categories, but inflation-adjusted consumer spending may soften a little in the face of a few headwinds. Consumer sentiment measures are in the dumps, again, though they don’t seem to be correlated very strongly with spending. We expect that rising gasoline prices will dampen sentiment still further, and weak sentiment could have an impact on overall retail sales if it gets low enough. Gasoline prices will also be a drag on travel and recreation spending. The recent decline in the stock market could deter previous spending plans among some high-income households. Also, wage growth is expected to slow somewhat. The hiring slowdown is creating job anxiety, even among people who are employed. Households tend to cut spending and add to savings when the possibility of losing a job looms. If the unemployment rate or initial claims for unemployment rise, that fear will intensify.
One tailwind for spending is that tax refunds have been larger than normal by 15%, or $350, on average, according to Internal Revenue Service data through March 20. It is likely that this will be noticeable in the Northeast and Pacific Coast states, given the higher cap on state and local tax deductions on federal returns.
