The Big Chill: See Past the Weakness in Retail Sales

Retail sales fell for a third-straight month in February. The weakness largely reflects record cold and historic snowstorms. Fundamentals are solid and should support stronger consumer spending in coming months.

Weakness Mostly Concentrated in Autos

Despite continued improvement in the labor market and consumer confidence levels that are firming on trend, retail sales tumbled 0.6 percent in February extending the losing streak for stores to three months in a row. Declines were broadly based across a number of types of businesses. According to the National Weather Service, the 64.8 inches of snow in Boston made February the snowiest month on record in the city, and it was the coldest February on record in Chicago and Buffalo.

While we do not have a precise way of measuring it, we suspect that there is something about arctic cold and several feet of snow on the ground that does not put people in a new-car-buying mood. Perhaps it should not come as much of a surprise then to learn that the 2.5 percent decline in motor vehicles & parts sales is the largest one-month decline in over a year. The decline in auto sales accounted for 0.5 percentage points of the 0.6 percent decline.

A look at other major categories of stores reporting big declines fits into the narrative of consumers waiting out the storms. Sales fell 2.3 percent at stores that provide building materials & garden equipment, while general merchandise stores saw a 1.2 percent decline. Other categories reporting falling sales included health & personal care, restaurants, furniture stores and electronics & appliance retailers.

Not All Retailers Are Complaining

There are few things that help a grocery store clear out inventory like a good snowstorm. Food & beverage stores reported an increase in February sales. Consumers may not have been hitting the stores, but more time at home may have helped boost online sales. Non-store retailers (which includes online sales) reported a 2.2 percent pop in February, the largest gain in 11 months.

So Where Is Consumer Spending Headed?

The weakness reflected in today’s retail sales report is not keeping in line with the improving backdrop for consumer spending that we have seen in many other economic indicators in recent months. The job market is booming, consumer confidence levels (both the University Michigan and the Conference Board’s measure) are near cycle highs and well above last year’s averages and the price of a gallon of gas is about a dollar cheaper than it was a year ago, on average.

Wages & salaries growth is gaining steam as well and is currently running ahead of retail sales growth. While this disappointing report may soften first quarter spending, we suspect most of the retail sales lost to wintry weather will be made up in coming months.