skip navigation

Stay up to date on timely topics and market events. Subscribe to our Blog now.

March 16, 2022

February Retail Sales Soft for Third Month in a Row

By Michael J. Bazdarich, PhD

Stay up to date on timely topics and market events. Subscribe to our Blog now.

Headline retail sales rose 0.3% in February, on top of a +1.0% revision to the January sales. For the more widely watched “control” sales measure, which excludes sales at vehicle dealers, building material stores, gas stations and restaurants, sales declined by 1.2%, though with a +1.4% revision to January.

Contrary to the media and Street reports we are hearing this morning, we read this retail sales news as continuingly weak. As commented a month ago, upon adjusting for price changes, the January sales gains were NOT sufficient to fully offset the declines seen in December. This continues to be the case even with the upward revisions to January sales announced this morning. What is more, February sales show a decline upon adjustment for inflation, whatever sales aggregate you look at.

Exhibit 1: Retail Sales Trends
Retail Sales Trends
Source: Census Bureau, Bureau of Economic Analysis, Bureau of Labor Statistics, Western Asset. As of 28 Feb 22. Select the image to expand the view.

Furthermore, all the February gain in nominal headline sales and then some occurred at gas stations, where prices are obviously surging. So, even in nominal terms, sales declined in February for any aggregate excluding gas stations.

In last month’s analysis, we attributed the December/January softness in sales to the effects of the Covid omicron variant surge and related restrictions imposed by local governments. We also suggested that shopping NOT completed in December was likely to be accomplished in January or February, in addition to normal January/February shopping. In other words, retail sales levels for 1Q should be enough above those of November to fully offset the December declines.

As seen in the chart, this has not occurred even for nominal sales. That is, it is clear in the chart that the average level of nominal sales for the last three months is substantially below the November level. (In fact, it is 0.9% below that level.) Adjusted for price increases, real sales on average over the last three months are down 1.7% from November.

There is growing reason to believe that more than omicron is going on here. Data released late last month show real wage incomes declining on net for the last four months. Total real incomes had been declining since March 2021 thanks to waning Covid aid from the federal government, but the declines since September occurred for real wage income. What’s more, despite the robust February job gains, real wage income likely declined again last month, thanks to declining workweeks, flat hourly wages and continuing inflation. Furthermore, January consumer spending data showed flat real spending on services since October, alongside the net declines in real goods spending indicated by retail sales.

So, besides any effects of omicron restrictions, rising prices also appear to have exerted a drag recently on both household incomes and consumer spending. If recent inflation were indeed driven by Federal Reserve (Fed) policy the way some claim, Fed stimulus would be pushing up both incomes and nominal spending just as fast—or faster—than the concomitant rise in prices. This is not happening. Our take is that the emerging slowing in consumer spending is working to slow both economic growth as well as inflation.

© Western Asset Management Company, LLC 2023. 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 authorized and regulated by Comissão de Valores Mobiliários and Brazilian Central Bank. 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”) (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.