As foreseen in December, the February retail sales report from the U.S. Census Bureau were soft but better than January’s deep decline. Discretionary categories, excluding pureplay e-commerce retailers were flat year-over-year in February, which was better than January’s -4% (including pureplay e-commerce retailers boosts January to +3% and February to +1%). The softness is the result of a “payback period” following December’s surge, base period effects, and easing inflation. Also, February is a shoulder period which means due to denominator effects, the numerator changes due to anonymous effects (like unusual weather) are amplified in year-over-year percentage change figures. Additionally, as we’ve seen over the past year-and-a-half, the shoulder periods are widening and deepening.
March is a strong seasonal period with Easter (this year) and spring, which means that momentum will very likely improve. (January and February are the lowest months of the year and March is typically 12%+ larger than February.) Moreover, March of 2023 is an easy compare given last year’s weather and consumer pullback. As such, we would expect discretionary retail sales (ex-auto, gas, food, etc.) should improve by 300-400 basis points.
For February, furniture & home furnishings continue to feel the impact of housing’s sluggishness; the year-over-year decline was -10% which is roughly where it has been. The same can also be said for home improvement, where retail sales fell -6%. Broadly speaking, most categories matched their recent pace: sporting goods (-3%), grocery (+0.2%), general merchants (+0.7%), clothing (+1.3%), consumer electronics (+2%), and pureplay e-commerce (+6.4%).
The February Consumer Price Index report from the Bureau of Labor Statistics showed inflation continuing to decelerate, at a rate slightly slower than expectations. The all-in reading was +3.2% year-over-year, ex-energy & food +3.8%, shelter +5.7%, ex-energy, food, & shelter +1.8%. Owners equivalent rent, as part of shelter, at 5.97%, slowed to below 6% Auto insurance also slowed, but at +20.6%, it's still pushing the aggregates higher, by 61 bps. Most non-consumer packaged goods categories are negative and grocery eased to +1.0%. However, a negative surprise within that category was a +1.4% month-over-month increase in breakfast cereal and a +2.1% increase in cookies & snacks (despite increasing concerns over “shrinkflation”).
As we wrote two weeks ago, the manufacturers are hoping to win share-of-stomach from higher priced food-away-from-home. The time period for judging the efficacy of that “hope” is March/April. As we showed in the traffic figures above, they aren’t having much success yet, as consumers continue to shift into non-measured grocery brands like Aldi and Trader Joe’s.
