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Making sense of February's retail flop

Myles Udland
·Anchor
·4 min read
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This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Wednesday, March 17, 2021

Weather, checks, and comps.

Some market watchers may have been shocked by Tuesday morning's February retail sales report.

The headline data showed sales fell 3% last month, the fifth-largest month-on-month decline dating back to 1992, according to data from Bespoke Investment Group. The only two worse months for retail sales declines came in 2008 and 2020 during the depths of the last two recessions. Economists were expecting a decline of 0.5% from January.

But if we take a half step back, this sharp drop in retail sales last month is both explicable and changes little about the anticipated course of the U.S. economic recovery.

Three major factors negatively impacted the February retail sales report: storms in Texas, stimulus checks, and revisions to January's data.

Those winter storms in Texas which knocked out power to millions brought economic activity in the state to a halt. Data from JP Morgan flagged to us by macro strategist Peter Williams shows card spending in Texas dropped by almost the same amount last month as during the earliest days of the pandemic.

The decline in card spending in Texas last month as winter storms hit the state were comparable to the fall off seen during the most acute phase of the pandemic back in March and April, 2020. (Source: JP Morgan)
The decline in card spending in Texas last month as winter storms hit the state were comparable to the fall off seen during the most acute phase of the pandemic back in March and April, 2020. (Source: JP Morgan)

OpenTable data tracked by JP Morgan also showed a huge drop off in seated diners in Texas last month as weather wreaked havoc across the state.

Restaurants in Texas were hit hard last month as winter storms brought activity to a halt, which played a role in depressing February's national retail sales figures released Tuesday. (Source: JP Morgan)
Restaurants in Texas were hit hard last month as winter storms brought activity to a halt, which played a role in depressing February's national retail sales figures released Tuesday. (Source: JP Morgan)

February's sales were also impacted by the disbursal of stimulus checks in January.

"The support to spending from the $600 stimulus checks, which went out in early January, is now even more apparent," said JP Morgan economist Michael Feroli. "And it looks like much of the stimulus boost in January benefited retailers of discretionary products, with double-digit percentage gains that month for sellers of furniture, electronics, and sporting goods."

The $1,400 checks currently in the process of being sent to most American households are likely to impact this data in the opposite direction in the months ahead. Which leads to the final element of Tuesday's disappointment: a tough comparison to the prior month.

Recall that the headline number for retail sales most widely cited by economists and the media is a month-over-month change. Typically, a "blowout" number would be a headline sales increase somewhere in the ballpark of 0.5% to 1%.

A multiple percentage point change like what was seen Tuesday, in other words, is quite rare. And as Bespoke's data suggests, outside of financial crises or pandemics, these kinds of numbers just do not happen.

Revisions published Tuesday now show retail sales in January increased 7.6% over the prior month compared to initial estimates of a 5.3% increase, according to the Census Bureau. And so this 2.3% upward revision to January's data would've challenged just about any month's report to look good on a headline basis. Let alone a report hurt by historically disruptive weather and fading fiscal stimulus.

As strategists at Bespoke Investment Group said in a report published Tuesday, "When you have trillions in stimulus going out the door and into consumer pockets at various points, sales will tend to be lumpy." And so strange comps are worth keeping in mind if we start to see retail sales figures go haywire in March or April.

And overall, the expected trajectory of an economy recovering sharply as vaccines are distributed, stimulus is sent out, and life beings to resemble something like the pre-pandemic world isn't altered by Tuesday's data.

"With the new fiscal stimulus likely to drive a big rebound in spending in March, we still estimate that real consumption growth will accelerate to nearly 10% [annualized] in the first quarter," said Andrew Hunter, senior U.S. economist at Capital Economics. "And as the accelerating vaccine rollout allows for a widespread reopening of the economy over the coming months, we expect second-quarter consumption growth to be even stronger."

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

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