Retail Sales February 2025

Spending reluctance

A modest rebound in February retail sales following a downwardly revised plunge in January indicates increased spending reluctance on the part of the consumers as flagging consumer sentiment, rising job insecurity and another bout of cold winter weather took a toll on households’ willingness to spend. Aside from the strong increase online and at personal care stores, sales were mixed across retailers, and the largest decline in sales at restaurants and bars in two years suggests consumers are cutting back on non-essential expenses. 
 

Retail sales rose less than expected in February, up 0.2%, while the January decline was revised lower from -0.9% to -1.2%. When adjusting for inflation, the volume of sales was flat given the 0.2% increase in consumer prices reported for February. 
 

Control retail sales — which is a key gauge of broader consumer spending trends that strips out the volatile components — surprised on the upside with a 1% advance following a downwardly revised 1.0% decline in the prior month. But the gain was supported by outsized gains in online shopping and personal care purchases that masked more mixed results at other retailers.
 

Purchases of motor vehicles (-0.4%) were again a drag on top-line retail sales despite the increase in unit sales of new vehicles reported earlier this month. The still-cold weather in February may have kept consumers away from auto dealerships. Consumers also spent less at gasoline stations (-1.0%), reflecting lower prices at the pump in February. 
 

Sales at clothing (-0.6%), recreational and sporting goods (-0.4%), and electronics and appliances (-0.3%) stores also fell. Moreover, spending at restaurants and bars (-1.5%) posted its largest decline in two years and has not grown in the last three months — which indicates that total consumer services spending could have been weak during the month. 
 

The latest data reinforces our expectations for softer spending momentum in Q1, with consumer spending likely to grow around 1.2% annualized following a strong 4.2% advance in Q4 2024. 
 

Cracks are forming in the economy’s foundation: Layoffs are creeping higher, hiring is slowing, consumer sentiment has deteriorated markedly, and inflation expectations are moving higher. As the negative impact from tariffs takes hold, slower income growth coupled with depressed consumer sentiment are likely to translate into slower consumption growth. While we don’t anticipate an outright pullback in consumer spending, recession risks are rising.