Wallets Stay Closed, Retail Sales Disappoint

Retail sales fell 0.6% in February, the largest decline in more than a year, and the third consecutive month of falling headline numbers. While harsh weather may share the blame, shoppers have been surprisingly thrifty despite falling gas prices and an improving labor market. The savings rate rose to 5.5% in February from 5% in January, the highest level in almost two years. The Commerce Department also reported that business stockpiles remained unchanged and total business sales fell 2% in January, the largest decline since March 2009 when sales fell 2.7% in the midst of the recession. These figures are somewhat unexpected given a strong February jobs report that included a recent low of 5.5% unemployment and 295k new jobs. While we are optimistic that better weather and falling gas prices will give consumers the confidence to start spending in the coming months, we remain cautious given the recent string of disappointing data. Should we see consumer sentiment improve or the savings rate decline, we would expect consumer spending to turn positive again, potentially putting upward pressure on prices and rates.

Sources: NYT, CRT