Retail sales increased in February

March 14, 2024

February retail sales rose 0.6%, a softer outcome relative to the consensus expectation of up 0.8%. January retail sales were revised lower to down 1.1% from the originally reported drop of 0.8%.

Weather seems to have been a factor impacting the performance of certain categories. In parts of the country, Spring arrived early. For example, Chicago experienced balmy temperatures of 60 degrees and notched the warmest February on record. Sales at building materials, garden equipment and supply dealers rose 2.2%, the largest increase in two years. On the flip side, apparel store sales fell 0.5% as winter gear fell out of favor. Inventories of winter clothing are likely to pile up and eventually find their way to discount racks.

Sales of motor vehicles and parts rose 1.6%, the largest increase since last May. Automakers are increasingly relying on incentives to move product. Affordability has become an issue given the high level of prices, rising insurance costs and high financing rates. Auto insurance has been rising by 20% annually for the last several months. Some automakers are sitting on more than 100 days' supply of vehicles when the preferred amount is 60 days' of supply.

Gasoline station sales rose 0.9%. Given that gasoline prices rose 3.8% in February, the lower print for sales at gasoline stations indicates that the price increase was not fully captured and there was some leakage via the quantity side. That suggests volume was down and signifies weaker demand, crimped by the higher prices.

Another sign confirming the pivot toward services was the performance of online sales and restaurant spending. E-commerce sales slipped 0.1% in February after declining 0.3% in January. Consumers may be exhibiting fatigue in purchasing goods. Such evidence comes from goods prices which have been deflating. In contrast, sales at eating and drinking establishments rose 0.4% and prices for overall services remain in positive territory.

Core retail sales, which feed into the calculation of GDP, were unchanged after declining 0.3% in January. February's result was weaker relative to the consensus forecast of up 0.4%. This implies real PCE is tracking at a 2.3% annual rate for the first quarter and real GDP growth of 2%, both down 0.3% from our earlier estimates.