- February retail sales rose an expected 0.1% in the month though the increase followed a much stronger and upwardly revised 0.6% gain in January.
- Though the level of auto sales remained high in the month it was little changed from January resulting in motor vehicle dealership sales in down a minimal 0.2%.
- Gas station receipts dropped 0.6% weighed down by indications of falling gasoline prices.
- Sales at building material stores continued to be strong rising 1.8% building further onto outsized gains in January and December of 1.2% and 2.2%, respectively.
- Control retail sales, which excludes autos, gas stations and building material stores rose a modest 0.1% though this followed a sizeable and upwardly revised gain of 0.8% in January.
- The data is consistent with our expectation that annualized consumer spending growth in the first quarter will moderate to 1 1/2% from the 3.0% recorded in Q4.
Our Take:
Lower gas prices and stalling auto sales, albeit at elevated levels, weighed on retail activity in February. However strength elsewhere resulted in retail sales still managing to eke out a gain following an upwardly revised 0.6% increase in January. The levelling out of auto sales following robust gains late in 2016 points to a slowing in consumer spending early in 2017 with today’s report signaling that the quarterly increase is likely to come in at 1 1/2%, about half the pace of the previous three quarters. Recent robust employment gains suggest little reason to expect this slowing to continue. As well, indications of an offsetting strengthening in Q1 business investment will allow overall GDP growth to remain at a slightly above-potential pace in the current quarter. Sustained above-potential growth prompted the Fed to return to tightening mode late last year and is expected to keep them tightening through 2017 including a widely-expected 25-basis point hike at this afternoon’s FOMC meeting.