Continued job and income gains in US to support retail sales and sentiment over 2016

US retail sales for February dropped 0.2% m/m, as compared with consensus expectations of a decline of 0.2%. However, the below expectations decline comes on the top of downwardly revised figures of January. The report shows that retail sales declined 0.4% in January, as compared with the earlier reported growth of 0.2%.

Most of the drop in retail sales was attributed to a decline in nominal gasoline sales. Sales at gas stations declined 4.4% m/m as refined product prices declined 5.8%. Sales, excluding gasoline and autos, grew 0.3% m/m in February. Meanwhile, the ‘control group’, which excludes building materials, food, autos and gasoline, reported no growth in the month, below the forecast of 0.2%.

Meanwhile, sales declined in several categories, such as general stores (-0.2%), furniture (-0.5%) and miscellaneous (-1.1%). On the other hand, sales grew strongly in categories including sporting goods stores (+1.2%), clothing stores (+0.9%), building material stores (+1.6%) and eating and drinking places (+1%).

It seems that retail sales have taken a few steps back with February’s retail sales data after January’s data. Revisions made to January’s figures were very disappointing and majorly weighed down any strength in the February’s figures, smashing hopes for a strong consumption print in this quarter, with PCE growth likely to fall below 3% market expected earlier.

Nevertheless, goods price deflation related to oil declines and dollar appreciation in the past carry on reverberate through the supply chain to some extent. Along with the unseasonably warm winter, which depressed demand for winter products, the current data undervalues the consumer sector strength.

Actually, the February report shows that strength in discretionary spending categories including restaurants and sporting goods, continue to imply that consumers are feeling relatively good about their income and job prospects. Meanwhile, growth in building materials suggest that house recovery is helping out.

“With strong labor market performance and nascent wage pressures developing, we remain of the view that accumulated gas savings coupled with continued job and income gains will continue to support sentiment and sales over the course of 2016”, says TD Economics.