Retail sales ticked up by 0.1% in February according to the advance Census Bureau report – on par with expectations. Better yet, January spending was revised up strongly, now up 0.6% during the month to start of the year.
Sales at motor vehicle & parts dealers (-0.2%) slipped a bit, with the ex-auto sales up 0.2% on the month. Gasoline station spending was also lower (-0.6%) – largely due to lower prices. Excluding autos and gas, retail sales were up 0.2% on the month, following up on a 1.1% surge during January (previously reported as 0.7%).
Excluding gas, autos, building materials (+1.8%), and food services (-0.1%), the so-called ‘control group’ used in calculating GDP was up just 0.1% on the month. While this was half of what was expected, it too came atop of a sizeable revision to January’s data which were reported as 0.8% – or double the previous estimate. Sales in the control group were dragged down by sales at electronics stores (-2.8%), department stores (-1.1%), and miscellaneous (-0.8%). Clothing and sporting goods were also lower after sizeable gains in the previous month. Overall sales were boosted by non-store and e-commerce retailers (+1.2%), furniture (+0.7%), and health & personal care stores (+0.7%).
Key Implications
This was a decent report as far as the U.S. consumer is concerned. While the headline print was far from awe-inspiring, the upward revisions to January data point to a much healthier consumption profile than previously anticipated, and suggest that the enthusiasm to shop carried into 2017. Overall we expect consumption to exceed 2% during the first quarter of 2017 despite the warmer weather that pulled down spending on winter clothing and utilities so far.
While some weakness was definitely present in several spending categories, much of this appears related to changing patterns in consumer behavior, with Americans increasingly opting for online purchases and shying away from department stores. Having said that, we expect the consumer to continue driving growth this year, as strong job gains and income gains enable American consumers to go shopping for things they may have held back from buying last year.
Given its relatively constructive tone, this report, alongside the CPI report released simultaneously, will only reaffirm the Fed’s resolve to raise rates at today’s meeting, with our expectation for two more hikes likely to come later this year as the Fed increasingly approaches its dual targets.
