Advance retail sales came in at the anticipated 0.1% in February, following an upwardly revised January reading of 0.6%. Sales are now 5.7% higher than a year ago. Excluding autos, sales were a little better, rising by 0.2%, where an increase of 0.1% was expected and follows a revised 1.2% increase in January. Sales for this category are now up 5.7% from one year ago. Motor vehicle and parts sales decreased by 0.2%%, after a decrease of 1.3%; they are now 5.6% higher than a year ago.
The most meaningful measure of retail sales activity excludes gasoline and auto sales (to negate the volatile influences of gasoline prices and auto financing incentives). Sales at gasoline stations decreased by 0.6%, following a rise of 2.1% in January, and are 19.6% higher than a year ago. The strength in core sales was mainly focused at building materials and gardening stores (1.8%), nonstore retailers (1.2%), furniture and appliance stores (0.7%), and health and personal care stores (0.7%). Any weakness in the month came from decreases at electronics and appliance stores, department stores, and miscellaneous stores. Excluding gasoline and autos, retail sales were 0.2% higher on the month, following a 1.1% increase in January, and were 4.4% higher than a year ago. Lastly, non-auto, non-gasoline station sales, less building and gardening equipment, were 0.1% higher in the month and 4.1% higher annually.
Today’s report reveals a slightly more mixed pace of spending following a strong increase in January. The main area of weakness is now auto sales (which have a large multiplier impact on growth), which have fallen for three of the last four months and is indicative of a topping out in auto sales from an exceptionally high level. Outside of this the strength in the housing-related areas (furniture and building materials stores) was notable and is consistent with the continued recovery in this sector. Consumer confidence since the elections has been exceptionally strong, however, that strength has been very much skewed toward the older segments of the population (55s and older). Whereas sentiment from the under 35s, the millennials, has been in outright decline. The older segments of the population favour higher interest rates, cutting the estate tax, regulation, corporate, and individual taxes, as well as bringing back jobs in coal mines. However, none of these seem to benefit the younger segments of society, who have little savings, want to borrow money, do not have estates to pass along, and prefer to work on cool Google/Facebook/Snap Chat campuses drinking lattes, rather than risking life and limb deep underground in a coal mine. The result is that there are seemingly very real distributional differences from the President’s proposed policy changes, and a rising tide is not lifting all boats. If these policies are enacted, this likely will be reflected in consumer spending patterns.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.