Retail Sales: February 2024

Disappointingly cautious retail sales rebound in February

  • Consumers remained cautious in February with retail sales rising a lower-than-expected 0.6% month over month (m/m), following a downwardly revised 1.1% drop in January. The February rebound was driven by building materials and autos after a weather-disrupted January.

  • Core retail sales were disappointingly flat on the month with consumers pulling back on health and personal care, clothing and furniture purchases. Spending at restaurants and bars rose slightly.

  • The inflation-adjusted picture makes clear that consumers are exercising more scrutiny with their outlays as retail sale volumes only rose 0.1% and core retail sales volumes fell 0.3%. While not a retrenchment, this does point to households being more careful with how much they buy in this higher cost environment.

  • Overall, retail sales are up a modest 1.5% year over year (y/y), but down 1.6% y/y when adjusted for inflation.

  • We expect consumer spending momentum to cool moderately this year as cost fatigue and softer labor market conditions constrain households’ spending power.

February was a nuanced month for retailers. Purchases of motor vehicles rebounded 1.6% after a 2.1% plunge in January due to cold weather. Similarly, spending at building materials and garden equipment stores rebounded 2.2% after a 4.3% slump in January. Still, in both categories, February spending levels were lower than in December pointing to only a partial post-January recovery.

 

Consumer spent more on electronics (+1.5%) and gasoline (+0.9%), but while the electronics purchases were stronger when adjusting for inflation, gasoline station sales were down 2.9% when adjusting for higher gas prices.

 

Encouragingly, spending at restaurants and bars rose 0.4% in nominal and real terms, indicating consumers are still favoring spending on experiences.

 

Spending at health care and personal care stores fell 0.3%, spending at clothing stores declined 0.5% and outlays at furniture stores decreased 1.1%.

 

Control retail sales – a key gauge of broader consumer spending trends that strips out the volatile components – were flat after a 0.3% slump in January. Adjusted for inflation, core sales fell 0.3% after a 0.7% pullback in January. Taken together, the January and February spending data point to softer spending momentum at the start of the year though the robust carry-over from Q4 2023 along with robust income growth will support average consumer spending growth in Q1 2024 (likely around 2.2%).

 

We continue to foresee consumer spending momentum cooling on slower employment gains, more moderate wage growth and rising debt servicing burdens, especially for lower-income families. Cost fatigue – reflecting the cumulative 20% increase in average prices since 2019 – will weigh on consumer spending power. We project that consumer spending will grow around 2% in 2024, following a 2.2% advance in 2023. We expect real GDP growth will drift below trend growth in H1 2024, with real GDP likely to grow 2.3% on average in 2024 following growth of 2.5% in 2023.

The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.