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    Its Never Tomorrow in Retail Sales

    American consumers have once again kept their own counsel refusing to spend their gasoline bonus, and by cutting purchases have made the much anticipated consumer led recovery as distant as ever.

    U.S. retail sales declined 0.1 percent in February and the January figures were revised substantially lower to -0.4 percent from 0.2 percent, according to the Census Bureau on Tuesday.  It was the largest back to back drop in a year.

    Sales excluding automobiles fell 0.1 percent and January was revised down to -0.4 percent from 0.1 percent. Sales without autos and gasoline rose 0.3 percent in February, though here also the January adjustment replaced a gain of 0.1 percent with a loss of 0.4 percent. 

    The 'retail sales control group', also called  'core sales', the category used by the Commerce Department to calculate gross domestic product (GDP), which removes items such as automobiles, gasoline, and building materials that tend to have large cyclical components, was flat  in February after climbing a revised 0.2 percent the  prior month. January was initially reported as an increase of 0.6 percent. 

    Weak core sales in February and the large negative adjustment to January's activity will detract from first quarter GDP.  The Atlanta Federal Reserve GDPNow model reduced its estimate for Q1 GDP to 1.9 percent from 2.2 percent on March 9th citing the drop in consumer spending.  

    The initial readings for January retail sales released on February 12th were generally optimistic:  total sales 0.2 percent, ex auto 0.1 percent, ex auto and gas 0.4 percent and core 0.6 percent. The revisions issued Tuesday were uniformly negative and quite large: total sales -0.4 percent, ex auto -0.4 percent, ex auto and gas -0.1 percent and core 0.2 percent.  

    The positive original estimates were largely the result of adjustments to the raw data applied by government statisticians to correct for seasonal variations in sales information. These adjustments are projections based on historical trends and are later corrected when the full data for the period becomes available. In January the adjustments assumed that the weakness in early data was larger than the historical performance indicated. That turned out not to be the case.

    Economists have been expecting that the relatively strong job growth of the past two years would translate into higher wages and those wages would mean increased consumer spending.  

    Non-farm payrolls increased by a more-than-forecast 242,000 in February, and have averaged the same over the past two years, the best period in 15 years. The unemployment rate was unchanged at an eight-year low of 4.9 percent, though the labor force participation rate was 62.9 percent, just  0.5 percent above its 38 year low last September.

    Annual average hourly earnings had moved higher in the seven months from June to December last year, rising from 2.0 percent to 2.6 percent, the best gain in over six years. But most of those gains were lost in February as wage gains dropped back to 2.2 percent. 

    Consumers, however, have chosen to save rather than spend any salary increase. The saving rate went from 4.8 percent of disposable income in May 2015 to 5.2 percent in December and January. The rate for February will be released by the Bureau of Economic Analysis on March 28th. 

    Household consumption makes up about 70 percent of GDP.  Nominal personal spending rose at a 4.2 percent annual pace in January, a sharp jump from December’s 3.2 percent rate but considerably less than the 5.8 percent average of the 10 years before 2008.

    The drop in retail sales was broad based with 8 of 13 major categories showing declines, including, gasoline stations -4.4 percent, furniture and home furniture stores -0.5 percent. Motor vehicles and parts dealers, food and beverage stores, general merchandise stores and the important online sales grouping were all off by 0.2 percent. Electronics and appliances store sales slipped 0.1 percent. Sales in health and personal care rose 0.7 percent along with a 0.9 percent gain in clothing stores, and 1.2 percent in sporting goods and hobbies.

    Retails sales number are not corrected for prices changes. The large fall in receipts at gasoline station reflects the decline in fuel costs.

    In February the price of a gallon of regular gas dropped 1.8 percent from $1.790 on the 1st to $1.758 on the 29th.  In the last two weeks gasoline prices have reversed and moved sharply higher. The nationwide average for a gallon of fuel was $1.945 per gallon on March 14th, a jump of 19 percent. 

    The annual gains in the retail sales since the recession remain well below their historical averages.

    Overall sales grew 3.1 percent in the 12 months to February, up from 3.0 percent in January but 38 percent below the 5.0 percent average in the decade to December 2007. Core sales were 2.9 percent higher annually in February, 41 percent blow their 4.9 percent average to December 2007. 

    Joseph Trevisani

    Chief Market Strategist

    WorldWideMarkets Online Trading

    Charts: Bloomberg

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