February 2013 retail sales show promising signs

February retail sales exceeded expectations, according to data released today by the United States Department of Commerce and the National Retail Federation (NRF).

Commerce reported that February retail sales at $421.4 billion were up 1.1 percent compared to January and up 4.6 percent compared to February 2012. Total sales for the December 2012 through February 2013 period were up 4.5 percent annually. What’s more, February represents the highest rate at which retail sales have risen going back to a 1.1 percent gain last September.

The NRF reported that February retail sales, which exclude autos, gas stations, and restaurants, were up 0.7 percent on a seasonally-adjusted basis from January and up 0.5 percent on an unadjusted basis annually. NRF officials said that this performance reflects how consumers quickly adapted and adjusted their spending in response to a payroll tax increase and higher gasoline prices in February.

“Consumers, once again, exceeded economists’ expectations and estimates in February,” NRF Chief Economist Jack Kleinhenz said in a statement. “It may be too early to measure the impact of the payroll tax hike and higher gasoline prices on consumer spending. However, this portends a good, but not great, first quarter for retailers as consumers continue to breathe life into the economy.”

As previously reported, even with retail sales growth occurring—despite being at a relatively low rate—there remains a mixed bag of signals and headwinds on the economic front, including a slightly declining unemployment rate,
improving consumer confidence data, as well as encouraging automotive sales and housing data.

These things are occurring, though, against the backdrop of sluggish GDP growth and general uncertainty regarding the economy.

As many economists continue to point out, higher job growth levels have the potential to boost retail sales—and overall—economic growth. But even with employment data showing some gains, it is still not yet occurring at a rate that has a meaningful impact on retail sales growth.

As previously reported, retail sales largely show slow and incremental growth, while continued growth is needed over a longer period, as consumer spending accounts for roughly 70 percent of U.S. economic activity. And while retail growth is relatively slow still, signals remain intact that the economy is showing some signs of recovery, with consumer confidence on the upswing to a large degree declines in gasoline prices over the last two months.

The continuing trend of slight or flattish sequential retail sales increases remains largely intact due to fairly even retail spending at a time when retailers remain cautious on the inventory planning side and postponing commitments until the until the economic outlook becomes clearer, while they are risking stock outages by having very lean inventories.

“It is very encouraging retail sales are up because it indicates that there is enough resiliency on the part of the consumer to withstand the higher payroll tax and all of the uncertainty to still keep buying,” said FTR Associates Senior Partner Larry Gross. “One month does not make a trend, but it is positive. FTR’s has not changed its base view of the economy, which is still calling for very modest growth, but our bias has shifted in the near-term from worrying about the downside to considering upside potential.”

Growth in housing, said Gross, is likely to continue to be a positive force for the economy and subsequently retail sales, with the overhang of unsold inventory down below historic norms even though current sales levels remain well-below pre-recession levels. But the real question will be where housing levels end up this year compared to last year, he explained.

“The opportunity is there for better than expected performance,” said Gross. “We have not changed our base expectations yet.”