A weaker-than-expected rebound in retail sales for February highlighted consumers pulling back from discretionary spending as growth in sales was concentrated in necessities. Such consumer behavior points to moderating economic growth this year, consistent with our latest projections.

Figure 1.  Shopping Online, Foregoing Dining Out

Sources: Census Bureau and The Conference Board.

Trusted Insights for What’s Ahead^®

• A  weaker-than-expected rebound in retail sales in February from the January plunge corroborates our estimates that consumption growth will slow this year, limiting overall economic growth.
  
  
• Redirecting dollars towards necessities that have become more expensive, such as food and health and other personal items -- away from durable goods such as cars, furniture and electronics -- shows declines in consumer optimism (soft data) is starting to materialize in the hard data as well.
  
  
• While the data are not suggesting consumer is in a crisis mode by any means, the latest report does show consumers are becoming more cautious amid uncertain economic outlook and rising prices.

Report Highlights

A 0.2% m/m increase in headline retail sales in February follows a downwardly revised 1.2% decline prior. Such a feeble rebound comes as consumers choose to shop online, foregoing spending on discretionary items such as cars, furniture and electronics.

Control group sales, which exclude cars, gas, food services, and building materials and directly enter the calculation of GDP growth, increased by 1% in February following a decline of a similar magnitude in the month prior. On net, with two months of data for Q1 in hand, control group sales grew by just 0.6% q/q saar, the slowest pace of growth since the pandemic.

Real retail sales, computed by deflating nominal sales by the consumer price index (CPI), were flat after falling by 1.7% prior.

Motor vehicles and furniture declined for two months in a row, while electronics saw a three-month declining streak. Restaurant sales fell twice over the last three months.

Consumers spent more on food, likely due to higher prices. Spending at health and personal care, as well as general merchandise stores increased.

A sharp rebound in online store sales in February followed an identical decline in January.