Consumers Spending on Essentials

Retail industry sales for February (which exclude automobiles, gas stations, and restaurants) rose 6.3 percent unadjusted over last year and were flat from January, according to the National Retail Federation.

February retail sales released today by the U.S. Commerce Department show total retail sales (which include non-general merchandise categories such as autos, gasoline stations, and restaurants) decreased 0.6 percent seasonally adjusted from the previous month and increased 6.8 percent unadjusted year-over-year.

“While this month’s numbers were disappointing, it is important to remember that February is typically a transitional month for the industry,” said NRF Chief Economist Rosalind Wells. “Retailers will look to an early Easter to help boost sales in March.” 
Consumers were watching their purse strings as sales at electronic and appliance stores decreased 0.4 percent seasonally adjusted from last month and increased a modest 4.4 percent unadjusted from last year. Furniture and home furnishings stores sales also decreased 0.4 percent seasonally adjusted from January, and decreased 0.3 percent unadjusted from last year.

In spite of the tempered report, some retailers still managed to perform well. Clothing and clothing accessory stores sales increased 0.2 percent adjusted from last month and 6.7 percent unadjusted year-over-year, and sales at health and personal care stores increased 0.5 percent adjusted month-to-month and 9.0 percent unadjusted from last year.

Brian Bethune, chief U.S. financial economist of Global Insight, a financial consultancy, called the fed report a “big pothole.”

“Consumer spending continues to come under downward pressure from the upward march in gasoline prices, slower growth in employment and compensation, and ongoing downward pressure on home and equity asset prices,” Bethune said. “Declines in asset prices in the fourth quarter of 2007 led to the first drop in household net worth since 2002, and this downward pressure on household net worth is expected to continue in the first half of 2008. It will be tough sledding for consumer spending in 2008.”

He added, “Recent indicators on employment, output, construction activity, and real consumer spending clearly point in the direction of a recession in the U.S. economy in the first half of 2008.”