After a respite in spending in January, consumers were seemingly off to the races in February. Retail sales rebounded a solid 0.6% in the month, offsetting about half of the 1.1% decline in January. The strongest gain since September was led by building materials (+2.2%), motor vehicles and parts (+1.6%) and electronics (+1.5%). Receipts at gasoline stations rose 0.9%, supported by a seasonally adjusted 0.8% rise in gas prices. Sales at furniture stores and clothing stores dropped 1.1% and 0.5%, respectively, and limited the overall increase. The bounce in February drove the year-on-year growth rate up to 1.5% from a flat reading in January.

However, control retail sales – which exclude food services, auto dealers, gas stations and building materials stores and is used to calculate consumer spending in the GDP report – were unchanged in February following a 0.3% decline in January. The flat reading on the heels of a drop in January points to weaker consumer spending growth in the first quarter.

Bottom line: While the rebound in retail sales in February was impressive on the surface, the details were somewhat weaker, particularly the control reading. As a result, we are expecting real consumer spending growth to moderate in the first quarter amid high interest rates, rising joblessness and dwindling excess savings.

In another release this morning, U.S. producer prices rose a stronger-than-expected 0.6% in February, lifting the yearly rate to 1.6% from 1.0%. Core producer prices cooled a little to 0.3% m/m, holding the yearly rate at 2.0%.

Table 1 - United States — Retail Sales

(month/month % change)

Source: BMO Economics, Haver Analytics

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