Friday, March 12, 2010

Retail Sales Confirm the Consumer Comeback

The stronger-than-anticipated retail sales data for February represent a further encouraging sign that the consumer is making a credible comeback.

Not only did overall sales rise 0.3% last month (versus a consensus call for a modest decline) but the ex-autos part of the report was also up a robust 0.8%. (Auto sales themselves fell 2%, reflecting, in part, the Toyota-related issue, which was not immediately offset by a quick pick-up in sales of other brands). One of the most surprising elements in the report was perhaps the strong gain in department store sales (+0.9%), dispelling all earlier fears about last month's snow storms having been a significant adverse factor in that category.

Source: Bloomberg, Haver Analytics

For purposes of calculating personal consumption in the GDP data, the most relevant version of retail sales is the one that excludes autos, gas station sales, and building materials; that version of the report rose a very healthy 0.9%, following a thoroughly respectable increase of 0.6% in January. Based on the available data so far, consumption is probably running at a 3.5% annual rate in Q1, which should help support GDP growth in the 3% area for the period.

Of course, retail sales are one of the most "revisable" economic releases of the month and, in today's report, we had a taste of that again, as both January's and December's data were revised in opposite directions; the result of those revisions was a net small downward effect for the combined two-month period. Still, the monthly noise of the data notwithstanding, it is impossible to ignore the underlying uptrend in consumer spending, which, after all is said and one, constitutes the backbone of the forward momentum that the economy recovery is gathering.

Anthony Karydakis

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