Retail sales rose the Econoday consensus of 0.1% in February, a weak reading.
However, January was revised from a solid 0.4% to a strong 0.6%.
Interestingly, auto sales fell in both January and February. Did consumers switch from buying autos to buying more junk?
A surprising point in this report is that these headline gains, though less than astonishing, were made despite weakness in the motor vehicle component which had been strong late last year and makes up about 1/5 of total retail spending. Auto sales fell 0.2 percent in February and 1.3 percent in January. Excluding autos, February retail sales rose 0.2 percent with January showing a standout 1.2 percent surge which is the strongest monthly gain in 5 years, since February 2012.
Gasoline pulled down February’s results, falling 0.6 percent after rising 2.1 percent in January. When excluding both autos and gasoline, sales rose 0.2 percent vs January’s very strong 1.1 percent. And control group sales, which are another core measure, inched only 0.1 percent in the month but follow an outstanding 0.8 percent gain in January, one that initially posted at 0.4 percent.
It’s the January revision that is most striking and which points to an upward revision for total consumer spending in the national accounts, one that came in at only 0.2 percent in the initial January report. Yet even the two months together, retail sales, though solid, are far from the astonishingly strong readings underway in consumer confidence, a mismatch that will play out in the months ahead. Another factor to note is that January and February are the two slowest months for retail sales, which makes for an outsized effect from seasonal adjustments.
Weather and Seasonal Adjustments
At least one economist thought sales would rise 0.9%. Amazing
Recall that December was cold and January was an exceptionally warm. I wrote about this in January (for December), and again in February (for January), accurately predicting the January plunge in factory output.
- January 18: Industrial Production Jumps Due to Weather: Good News Stops There
- February 15: Industrial Production “Unexpectedly” Declines Due to Weather: Economists Surprised Again, GDPNow Forecast Dives
On January 24, in Formulas Don’t Think: Investigating Weather-Related GDP, I commented: “Temperatures have been warmer than normal for most of January. Temperatures in Chicago hit a remarkable 60 degrees last Saturday.”
Optimism Warranted?
Econoday optimism is highly suspect. Seasonal adjustments in slow months on top of unusually good weather may account for the January spending surge.
Yet, despite good weather, auto sales fell 1.3% in January and another 0.2% in February.
Consumer Confidence
Econoday goes on with statistical nonsense: “Retail sales, though solid, are far from the astonishingly strong readings underway in consumer confidence, a mismatch that will play out in the months ahead.”
The Fed is a big believer in consumer confidence numbers. I never understood why because I could not see a strong correlation between confidence and spending.
The above chart courtesy of John Hussman as noted in What Does Consumer Confidence Really Measure?
Consumer confidence is a strong coincident measure of the S&P 500, not a leading predictor of consumer spending habits.
Mike “Mish” Shedlock
