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Retail sales rebounded after a big January snowstorm kept many shoppers at home, but the 0.6% rise in February only recovered about half of January’s sales drop. If motor vehicle and gasoline sales are excluded, the recovery was only one-third. While one month does not make a trend, it may indicate that consumers have finally begun to ease up on spending. All eyes will be on spring sales to either confirm or deny a new trend.
February sales excluding gasoline rose 0.6%, but half of that gain was due to a large 1.8% rebound in motor vehicle sales. Warm weather in February juiced building materials sales by 2.2% and electronics and appliance stores by 1.5%, but other category gains were modest: Food service, general merchandise and miscellaneous sales were all up about a half percent. More ominous was that e-commerce, groceries and sporting goods sales were flat, and furniture, health and personal care, and clothing store sales showed declines.
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Consumer spending on services excluding restaurants rose a strong 1.0% in January, the latest month for which data is available. The strength in January is partly the result of higher utilities spending during the cold weather. But services spending has risen briskly since last fall and is up 7.9% at an annual rate over the past five months.
The strength in services spending could signal the beginning of a switch by consumers to buying more services as their need for goods levels off. Purchases of goods soared at the beginning of the pandemic in 2020. While services have picked up since then, the share of goods in household spending is still well above its pre-pandemic norm and implies that the switch to more spending on services still has room to run.
The weaker-than-expected February sales rebound will likely make it easier for the Federal Reserve to make its first interest rate cut in June if inflation eases. The economy in general is due to cool a bit in the next six months, with a gradually weakening jobs market. Saving rates have been much lower than their historical norms and will likely begin to rise slowly, cutting into future retail spending. Student loan repayments started up in October, and along with higher interest rates on consumer loans, that may weaken some households’ spending power.
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