The U.S. Census Bureau releases its advance monthly retail sales report for February on Monday, following a delay caused by the partial shutdown government in January. Economists surveyed by Bloomberg are expecting a 0.3 percent increase in sales, which indicates that the slow start of 2019 might be coming to an end. Here are the five things to watch in the report.
1. Slow recovery from December’s disaster
Retail sales picked up only slightly in January after December saw the biggest drop in almost nine years, suggesting that 2019 started off with a sharp economic slowdown. Healthy consumer confidence and high income wages had economists looking for reasons for the low retail sales numbers. If the headline number in February goes up even slightly, it will indicate that consumer spending continues to recover after disastrously slipping at the beginning of the year.
However, economists say we should take the number with a grain of salt and look ahead towards March and April to fully understand where consumer confidence stands.
“I wouldn’t put too much weight on the February month because it’s kind of a nothing month for retailers,” said Scott Brown, chief economist at Raymond James, adding that spring sales can drive up spending.
2. Hesitation from low income-tax refunds
Sales usually see a boost when consumers get their hands on tax refunds. But consumers complained of lower refunds this year, with the returns down 3.8 percent at the end of the first three weeks of the tax season compared to last year.
“If you were expecting to have a big tax return and this is not happening, it would have an impact on your spending,” said Jocelyn Paquet, economist at the National Bank of Canada.
3. Low job creation, low spending
Job creation slowed significantly in February, adding only 20,000 jobs – the smallest gain in over a year. Fewer people getting jobs could mean fewer people headed to the stores to spend their paychecks. However, the report did show underlying good news, including the strongest year-over-year wage growth in a decade at 3.4 percent – and one slow month for job creation does not mean there is a call for concern.
“The number is very volatile from month to month,” said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC. “We need to look at a three-month moving average.”
4. Deceleration of auto sales
A drop in auto sales in January pulled down the headline number – and February isn’t looking much better. Although gas sales increased, predictions about February’s auto sales are looking dim, with online retail site Edmunds.com estimating a 2.8 percent drop.
Weather may have played a factor in the drop in auto sales, as the Midwest saw a brutally cold month with temperatures dropping into the negatives.
“This is not conducive to people spending,” Paquet said.
5. Relief from the end of the government shutdown
The end of the partial government shutdown, which began December 22 and ended on January 25, making it the longest shutdown in the country’s history, could have also impacted spending in February. Government workers might have turned around their spending once their paychecks arrived.
“It does appear [the shutdown] could have been a key catalyst in slowdown for January and February,” Brown said. “I do anticipate a rebound in March and April.”