Consumers Play the Waiting Game: Warmer Weather, Higher Wages Needed
Economists will have a clearer picture of how strong consumer spending was in February when the U.S. Department of Commerce releases its retail sales report on Thursday. Economic reports in the first two months of the year have provided conflicting diagnoses about the health of the American consumer — whose spending accounts for approximately 70 percent of the United States gross domestic product. In many ways, the spending environment has been a difficult one; in both December and January, the U.S. economy created far fewer jobs than anticipated, a phenomenon that was likely the result of frigid temperatures sweeping the nation, but nevertheless impacted how much discretionary income many Americans had at the beginning of the year.
Weather weighed particularly heavy on January’s retail sales figures, which measures receipts for merchandise, related services, and food services. The month was the second consecutive month of negative growth in retail sales, and the 0.4 percent decline was the biggest drop recorded in 10 months. Even when only the core measure of retail sales — which excludes volatile spending on autos, gas and building supplies — was considered, the month’s growth was still weak. But additional Commerce Department data showed that consumers did in fact open their wallets in January, but what they spent their money on were services rather than durable or nondurable goods. Personal consumption, the official tally of consumer spending ranging from restaurants to cars, climbed a seasonally adjusted 0.4 percent. That gain was driven by a 0.9 percent increase in spending on healthcare and heat. It is believed that higher heating costs partially distorted the month’s spending figure.
January also marked the first full month in which approximately 1.4 million Americans were without extended unemployment benefits after Congress failed to renew the extended unemployment benefit program in late December.
“Despite all the winter economics, it points to better-than-expected income, wage, and spending growth,” IHS Global Insight Director of Consumer Economics Chris Christopher told the Los Angeles Times after the Commerce Department’s Personal Income and Outlays report was released. “However, a significant amount of the spending occurred on necessities and not on discretionary items.” Early last year it became clear that American consumers were keeping their purchases limited to immediate necessities as confidence in the economy, and the economy’s ability to created enough jobs to fill the gap left by the recession, remained weak. While the overall picture of consumer spending has been one of improvement, a closer view reveals more conflicting indicators about the health of the average American consumer, especially as stagnant wages continue to impact the spending power of low-wage earners.
The weekly snapshot of retail sales compiled by the industry trade groups — the International Council of Shopping Centers and Johnson Redbook — have indicated that consumer spending has been relatively weak throughout the month of February. A January decrease is consumer spending is typical; shoppers often decrease expenditures following the holiday season, but both the same-store sales index compiled by ICSC with Goldman Sachs and the Johnson Redbook index showed that retail sales numbers have not yet improved significantly from January’s lows. For the week ended March 8, the first full week of the month, the same-store sales indices reflected ongoing weakness, although the ICSC-Goldman Sachs same-store index was marginally stronger than in the previous week.
The ICSC-Goldman Sachs index — one of the most timely indicators of consumer spending — recorded extremely weak readings in February, hitting a recovery low of 0.0 percent week-over-week growth early in the month. The measure has rebounded to some degree, and last week, the index posted consecutive, week-over-week growth. On a year-over-year basis, same-store sales growth also continued to recover lost ground, expanding at a 2.1 percent rate after posting a 1.5 percent rate of expansion in the previous week. The index also increased 1.3 percent on a weekly basis, a significant improvement from the 0.3 percent gain recorded in the previous week.
“Although adverse winter weather continued to play havoc regionally, a bout of extremely warm temperatures in the West was favorable for spring seasonal categories,” ICSC Chief Economist Michael Niemira explained in a Tuesday press release. ICSC Research expects sales in March to increase by about 3 percent.
Johnson Redbook’s weekly reading also inched lower, although its monthly measure improved slightly. The index has expanded 2.5 percent over the past 12 months, which compares with the previous week’s 2.7 percent rate of growth. In addition, Redbook’s monthly comparison improved, contracting at a 0.3 percent rate following the previous week’s 1.7 percent rate of contraction. Redbook sees stronger spending ahead when temperatures warm up and boost the demand for seasonal goods.
Job creation gained some momentum in February, and economists estimate that retail sales rose 0.2 percent last month.
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