By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

Sign up to receive email updates as new reports are released.

February Retail Sales Decent Beneath the Headlines

Happy April Fools’ Day! After a soft December retail sales print helped stoke recession fears, we thought the February sales data might clear the air a bit about the fortunes of the consumer sector. Late-year weakness in goods consumption (retail sales) has been contradicted by steady growth in services consumption and income growth, and we thought the retail sales data were plagued by Christmas season timing issues and—possibly—frigid weather in the Northeast.

However, today’s February retail sales report rectified only some of the questions concerning the course of the consumer. The February sales data showed general declines, but these were more than offset by sharp upward revisions to January’s sales gains. Meanwhile, previously soft online sales data are now back "on line." On net, both pessimists and optimists on the economy can find something in these data to support their story.

Headline retail sales showed a -0.2% decline in February, but January’s gain was revised to 0.5%, from the previously reported 0.2%. We focus on a measure of "control" sales that excludes cars, gas, and building materials, but includes restaurants. That measure showed a -0.1% decline in February, but a 1.4% gain in January revised upward from the 1.0% initially reported. In other words, across the board, upward revisions to January were larger than the declines reported for February.

The accompanying chart tells the story. Sales gains last summer and in November had pulled control sales levels above underlying trends. We thought those gains would prove ephemeral, so that sales would move back to those trends (orange line in chart). This is essentially what has happened. Notice that the 12-month growth rate for control sales is right back to 2016-17 norms.

Granted, the February sales decline has pulled sales levels back slightly below "underlying" trends, but only slightly so, and it may be that the vestiges of the Polar Vortex in February worked to restrain February sales. Our guess is that the March sales levels to be announced on April 18 will bring sales levels back to underlying trends. So, we don’t see the recent sales softness as a harbinger of recession—or even of a serious slowing in economic growth—but only the mark of a return to more sustainable trends.

Within store-type details, one of the oddest elements within the soft December sales data was a plunge in sales for online vendors. Today’s data did clear up (reverse) that oddity. With February online vendors showing a 0.9% sales gain on top of a whopping +2.4% upward revision in January—to what is now a 4.5% January gain—online sales are now fully back to their previous, strong growth trends. That December decline in online sales seems to be a hiccup offsetting a run of early holiday shopping by consumers.

Retail Sales Trends
Retail Sales Trends

Source: Census Bureau, as of 28 Feb 19. "Control" retail sales is total sales less vehicle dealers, service stations and building materials stores.

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 42 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

Sign up to receive email updates as new reports are released.

© Western Asset Management Company, LLC 2019. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK and EEA countries as defined by the FCA or MiFID II rules.