Kiplinger's Retail Outlook: Feb. Sales Softer Than Expected

last updated 15 March 2024

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Retail sales rebounded after a big January snowstorm kept many shoppers at home, but the 0.6% rise in February only recovered about half of January’s sales drop. If motor vehicle and gasoline sales are excluded, the recovery was only one-third. While one month does not make a trend, it may indicate that consumers have finally begun to ease up on spending. All eyes will be on spring sales to either confirm or deny a new trend.

February sales excluding gasoline rose 0.6%, but half of that gain was due to a large 1.8% rebound in motor vehicle sales. Warm weather in February juiced building materials sales by 2.2% and electronics and appliance stores by 1.5%, but other category gains were modest: Food service, general merchandise and miscellaneous sales were all up about a half percent. More ominous was that e-commerce, groceries and sporting goods sales were flat, and furniture, health and personal care, and clothing store sales showed declines.

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The strength in services spending could signal the beginning of a switch by consumers to buying more services as their need for goods levels off. Purchases of goods soared at the beginning of the pandemic in 2020. While services have picked up since then, the share of goods in household spending is still well above its pre-pandemic norm and implies that the switch to more spending on services still has room to run.

The weaker-than-expected February sales rebound will likely make it easier for the Federal Reserve to make its first interest rate cut in June if inflation eases. The economy in general is due to cool a bit in the next six months, with a gradually weakening jobs market. Saving rates have been much lower than their historical norms and will likely begin to rise slowly, cutting into future retail spending. Student loan repayments started up in October, and along with higher interest rates on consumer loans, that may weaken some households’ spending power.

David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.