Commentary: Downtick in February largely a temporary blip
After solid start to the year, retail is now back in softer growth territory. While the 2.1% rate of overall expansion is not disastrous, it is much lower than the past few quarters and is largely the result of higher gas prices which buoyed sales at gas stations by 15.8%. The pure retail number is more concerning, with the 0.8% increase being the slowest growth recorded since February 2013.
There is, however, some comfort to be taken in the fact that February 2013 is the last month in which growth was so anemic. In that year, the IRS delayed tax filing and refunds due to changes in the tax code. This mirrors this year’s various tax refund delays, something that has affected the amount households have to spend on retail. Back in 2013, retail sales growth bounced back in the months following February; a pattern we expect will be repeated over the coming reporting periods.
The other, albeit, smaller factor that needs to be accounted for is that 2016, the comparison against which this year’s figures are made, was a leap year. This is not accounted for in the non-seasonally adjusted figures and so dampened growth. The February 2013 figures also suffered from this impact as 2012 was a leap year.
Given all this, it is fair to say that the downtick in spending during February is not the result of structural factors or a downswing in consumer sentiment; it is largely a temporary blip. The evidence from our own sentiment tracker, and other indicators such as the labor market numbers, backs up this view: There is nothing to suggest that the consumer economy should be losing this much momentum.
The tax refund dynamic also shows up in where the declines are coming from: discretionary categories have suffered far more than non-discretionary. Electricals, a product category many people indulge in when spending their refunds, has recorded a year-over-year sales decline of almost 10%.
As much as this softening of retail numbers is temporary, it would be imprudent not to recognize that there are some underlying pressures on retail that may take some of the edge of growth over the coming months.
The rise in fuel prices is foremost among these. Although there are now signs that pump prices are moderating and may start to fall as spring approaches, there is no doubt that consumers are paying more to fill up their vehicles – something that puts a dint in the amount they can spend elsewhere.
Discounting levels are another feature of the market which will dampen growth. This is something that has affected apparel players for a time, and it is now starting to impact food retailers in a more significant way. All in all, it points to a year that will see reasonable growth, but one in which margins will be under pressure.