US February retail sales likely weakened from January

US retail sales have been strong lately, but markets project February’s retail sales to soften slightly. According to consensus, headline sales are likely to fall 0.2% from January. Considering the 7.5% decline in gasoline prices in January, this is not really much of a drop. Furthermore, headline sales growth, adjusting for inflation, will accelerate to 4% y/y from 3.4% in January.

Meanwhile, core control group sales, excluding gas, food, home building materials and cars, are also not strong. According to markets, core control group sales are likely to have grown 0.2% in February from January levels. This is lower from the 0.6% growth seen in January, but on a year-on-year basis, it accelerated 3.9% y/y as compared with 3.1% in January.

Subtracting around 1.7% for core inflation, real control group sales seem to have grown by around 2.2%. Looking at the actual consumption (PCE) series, which is included in GDP calculations, it’s more give than take. PCE, in the past three months has grown 0.28 per month on average, which annualizes to a pace of 3.3%.

This is slightly lesser than the 2.9% y/y on-year rate; however, the point remains that consumption is performing well. This indicates that inflation seems to be heading up after baffling analysts and officials in the past few years. Core CPI inflation passed the US Fed’s target rate of 2% in November and is relatively plump at 2.2% y/y. Core PCE inflation, which is the central bank’s favoured measure, rose to 1.7% in January, as compared with December’s 1.5% and October’s 1.3%.

This is all in the midst of another quick decline in energy prices. The US Fed, in its last economic forecasts in December, stated that core PCE inflation might end 2016 at 1.6% y/y. It has already reached 1.7% in January.