Job Gains and Cheap Gasoline Were Not Enough to Spur Sales
- January Retail Sales decreased by 0.8 percent, as non-gasoline categories slumped.
- Ex-auto Retail Sales fell by 0.9 percent.
- Business Inventories for December were up by 0.1 percent.
- Initial Claims for Unemployment Insurance increased by 25,000 to hit 304,000 for the week ending Feb. 7.
Retail sales are sagging under the weight of falling gasoline prices, but that is not all to the story. Even non-gasoline sales have been weak through December and January. With strong job growth in recent months, improving consumer confidence, and low gasoline prices, the slump in non-energy retail sales is unexpected. One theory is that some non-service-station categories also sell enough energy-related products to reflect lower energy prices. An example of this might be propane sales at hardware stores. That may be the case, but it seems implausible for furniture store and clothing store sales, which have also been weaker than expected. Total retail sales fell by 0.8 percent in January as gasoline station sales dropped by 9.3 percent, reflecting lower prices, not lower volumes. The same pattern was true in December, when total retail sales fell by 0.9 percent. After adjusting for price effects, gasoline stations are expected to show solid sales over the winter. Other sales categories will not get the benefit of positive price adjustments when converted from nominal sales to constant dollar sales. Constant dollar retail sales are rolled up into real consumer spending, which accounts for about two-thirds of U.S. GDP. The January retail sales data sets the stage for weaker-than-expected real consumer spending in 2015Q1. We have already assumed conservative consumer spending behavior in 2015Q1 in our February U.S. Economic Update, so we will not be revising our expected weak 1.1 real GDP growth rate for 2015Q1 down at this time. Still the weaker-than-expected non-energy retails sales data over the winter begs for an explanation. Possibilities include: (1) miscounts leading to upward revisions later on, (2) undercounting internet sales/or informal transactions, (3) a jump in savings as consumers pay down debts, (4) a shift in consumer spending patterns due to the lessons of the Great Recession, simply a lower propensity to consume across all demographic groups, (5) demographic effects, including the aging of the baby boomers. Reality may include elements of all these factors, and others.
Business inventories were also weaker than expected in December, up only 0.1 percent. Energy price effects are also in play here. The weak December inventories numbers suggests that 2014Q4 real GDP may be in for a bigger downward revision than has been implied by updates to trade data alone.
Initial claims for unemployment insurance increased by 25,000 to 304,000 for the week ending February 7. This looks like typical noise in the series. Weekly initial claims have hovered around 300,000 since last July. Continuing claims dropped by 51,000 for the week ending January 31, to 2,354,000.
Market Reaction: Equity markets opened with gains. The 10-year Treasury yield is down to 1.97 percent. NYMEX crude oil is up to $50.19/barrel. Natural gas futures are down to $2.69/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Retail Sales 02-12-14.