Retail Sales Advance 1.1%, Outpacing Expectations

Surprising analysts, February retail sales advanced 1.1% vs. an expectation of just a 0.5% increase, even with the expiration of the payroll tax cut. This follows a revised 0.2% increase in January and was the biggest jump in five months. Still, part of the increase was explained by a 5.0% rise in gasoline sales (remember that this report is not adjusted for price changes) and a 1.1% increase in auto sales. Gas prices were higher, averaging $3.67 a gallon in February, up from $3.32 the prior month. Cars and light trucks sales increased in February, with the annualized rate of sales advancing to 15.3 million from 14.4 million a year ago, according to data from Ward's Automotive Group. Part of this increase in auto sales reflects the age of cars on the road, which is now near a record high. Excluding autos, retail sales advanced 1.0%. After excluding gasoline, autos and building materials, sales in the remaining categories (which flow into consumer spending in the GDP report) advanced at a still-respectable 0.4% monthly pace. Clearly, the consumer is shopping, but part of this may reflect tax refunds. Still, the Treasury Department reports that taxpayers had received $159 billion in IRS refunds in so far this fiscal year through March 8, compared with $178.3 billion at the same point last year. Not all categories benefited, however. Electronics sales were down -0.2% after a -0.1% drop the month before. Furniture sales fell by -1.6%, after a flat reading in January. These two categories represent more discretionary spending, and may reflect concerns about the end of the payroll tax holiday. And department store sales dropped by -1.0% after a 0.5% gain in January. However, the broader category of general merchandise stores, which includes department stores as a component, advanced by 0.5% following a 0.2% gain in the prior month. These general merchandise stores include a combination of more discretionary items as well as necessities, like food, as well as clothing. Other categories, representing less discretionary items fared better. Clothing sales increased 0.2% after a 0.8% jump in January. Miscellaneous store retailers' sales rebounded 1.8% after a -0.5% drop in January. Online sales continued to grow, with that category advancing 1.6% after climbing 1.4% in the prior month. Because of increased numbers of people working – February job gains were 236,000 across a broad array of industries – and an increase in the workweek and rising hourly pay, consumer incomes grew in February. Combining total hours worked and hourly wages, the measure of aggregate payrolls for all workers increased by 0.6% in February. This compares to the previous month, when aggregate payrolls were flat after two 0.8% gains in prior months. This appears to be bolstering aggregate spending, offsetting some of the effects of the end of the payroll tax holiday. Thus, Americans looked past the effects of the end of the payroll tax holiday and increased their spending, in another sign the economy continues to grow.