Retail sales continued to make progress with an increase of 0.3% month-on-month (m/m), just a notch below the consensus estimate for an increase of 0.4%. January’s reading was revised up by a more than a full percentage point to 4.9% m/m from 3.8% m/m reported earlier. This makes February’s showing stronger than the headline appears.
Sales at autos & parts dealers continued to grow, rising 0.8% m/m even after January’s upward revision to 4.6% vs. (5.7% reported earlier). Growth was concentrated in auto dealers, while sales in automotive parts & tire stores declined. Excluding autos, retail sales were up 0.2% m/m.
Sales at gasoline stations were up 5.3% m/m, but most of it is explained by hefty price growth, with gasoline prices up by 6.6% m/m. Building materials retailers saw a gain of 0.9% m/m in February.
Sales in the “control group”, which exclude the above categories and are used in calculating personal consumption expenditures (and GDP), were down by 1.2% m/m. However, January’s sales were revised to stronger +6.7% m/m from the advance reading of +4.8% m/m.
- Within the group, the biggest contributors to growth were sales at food services & drinking places (+2.5% m/m), miscellaneous stores retailers sporting goods (+1.9% m/m), hobby, book & music stores (+1.7% m/m), clothing & accessory stores (+1.1% m/m).
- The fortunes of non-store retailers reversed this month with a decline of 3.7%, but that’s after an upwardly revised gain of 20.6% m/m in January (from +14.5% m/m reported earlier). Another contributor to the decline were health & personal care stores (-1.8% m/m) while all other categories reported marginal losses.
Key Implications
Retail sales continued to grow for the second month even after sizeable revisions in January, setting the first quarter up for another solid gain. Unlike last month, when gains concentrated in ecommerce – consumers’ favorite in the time of rising COVID cases, February sales were more diversified, which is a testament to a solid rebound in activity as Omicron waned.
Although sales are reported in nominal terms, we estimate that real sales were actually down by roughly 0.5% month-on-month in February (after a gain of 4.2% m/m in January). Prices had an outsized impact on several categories that saw some of the largest nominal gains during the pandemic. Notably, sales at gas stations and food & beverage stores showed a decline of more than 1% m/m in real terms.
Indeed, we would put the risk of higher inflation on top of the list for future spending growth. We expect price pressures to ease in the second half of the year but recent acceleration of energy and food costs may still have an impact on spending, despite notable progress in employment and sizeable excess savings accumulated during the pandemic. Surely, price growth will take the center stage in the Fed’s policy deliberations, which we will report on in a few hours. Stay tuned
