Is Consumer Spending Still Providing Economic Momentum?
Job growth and industrial production and consumer spending are strengthening once again after posting concerning drops early in the year. “The consumer appears to be back in the game,” noted TD Securities deputy chief economist Millan Mulraine after the Department of Commerce’s February retail sales data was released. “We see this as further confirmation that the underlying momentum in the economy remains quite favorable.” In February, for the first time in three months, retail sales increased on a month-over-month basis, rather than decreasing. As the Department of Commerce revealed last week, retail sales totaled $427.2 billion last month, an increase of 0.3 percent from January’s figure, which the report downwardly revised to a 0.6 percent drop. The retail sales growth reflects a comparable pickup in consumer spending, a measure that accounts for approximately 70 percent of gross domestic product in the United States.
For the past several months, as retail sales remained stagnant, economists postulated that the extremely cold and wintery weather was responsible for low spending and many other problems with the economy, including weak job creation. But with the release of February’s retail data, it is clear that consumer spending is no longer the hostage of cold temperatures. However, the weekly numbers for March still indicate that spending is relatively soft.
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 was weak throughout the month of February, and March’s numbers have not notably improved. 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 Johnson Redbook 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 percent week-over-week growth early in the month. The measure has rebounded to some degree, even though readings have been volatile. In the week ended March 15, the index retreated on both a weekly and yearly basis. Same-store sales growth expanded at a 0.7 percent week-over-week rate after increasing at a 1.3 rate in the previous week. The index also rose 1.5 percent on a yearly basis, a slight dip from the 2.1 percent gain recorded in the previous week.
“Weather Trends International put it best on the weather conditions over the past week when [it] said, it was a ‘battle between winter and spring,’ which seemingly added to the mixed performance for the industry,” ICSC Chief Economist Michael Niemira explained in a Tuesday press release. “Stores geared to discretionary items performed best over the week with gains in furniture, department and non‐apparel specialty. Office‐supply stores also saw business pick up.” ICSC Research expects sales in March to increase by about 3 percent.
Comparatively, Johnson Redbook’s weekly reading inched higher, although its monthly measure is still in negative territory and weekly numbers have been volatile as well. The index has expanded 2.8 percent over the past 12 months, an improvement from the previous week’s 2.5 percent rate of growth. But Redbook’s monthly comparison weakened, contracting at a 0.5 percent rate following the previous week’s 0.3 percent rate of contraction. Redbook sees stronger spending ahead when temperatures warm up and boost the demand for seasonal goods.
That retail sales gained ground in February is a sign that consumers shook off the harsh weather. But some economist have worried that the fact customers were keeping discretionary spending low recently was a sign of additional structural problems with the U.S. economy, and there are still reasons for concern.
Economists do expect spending levels will only improve in the coming months, and there is no evidence to disprove that assertion. 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. Later in the year, better employment gains, combined with growing household wealth from the stock market rally and improving real estate values, put a significant number of higher-income Americans in the position to increase their outlays. But while the overall picture of consumer spending has been one of improvement, a closer view reveals more conflicting indicators about the health of the American consumer — especially along socioeconomic lines.
Take, for example, real disposable income per capita, which is still far below its December 2012 level of $38,175 — the highest level personal income has reached in the past five years. As of January 1 of this year, real disposable income per capita stood at $36,948, meaning the average American had less money to spend than they did a year before. Even if the Commerce Department’s Personal Income and Outlays report pointed “to better than expected income, wage, and spending growth,” as IHS Global Insight Director of Consumer Economics Chris Christopher told the Los Angeles Times, “a significant amount of the spending occurred on necessities and not on discretionary items.” In February, Americans may have seen incomes increase by 0.3 percent, but they were forced to spend more on necessities like heating and healthcare.
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