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First Cut: February retail sales down after a solid January; hard to say if it was the coronavirus to blame

Retail and food sales in February fell 0.5% on the heels of up 0.6% in January (previously up 0.3%) and a flat reading for December (previously up 0.2%).  The decline was more than markets anticipated. It was mainly due to a sharp 2.8% drop in gasoline prices and a cutback in building materials of 1.3%. Motor vehicles were also lower at down 0.9%. Excluding sales of motor vehicles, retail was down 0.4% in February from January. Compared to a year ago, total retail and food sales were up 4.3% and sales excluding motor vehicles were up 4.2%.

So-called “core” retail sales – sales excluding motor vehicles, building materials, and gasoline – were a scant 0.1% lower month-over-month, and up 3.2% compared to a year-ago.

Most categories for retail sales had declines in the month, possibly reflecting a pause after strong spending in the prior month, and that the first wave of tax refunds was diverted to other spending in 2020. It may also in part be due to worries about the spread of COVID-19 keeping shoppers out of stores. It is notable that nonstore retailers – which includes on-line outlets – were up 0.7%. Miscellaneous store sales were up 1.4%, probably due to higher prices for tobacco products. Sales at food and beverage stores were flat.

One month of softer sales is not necessarily a cause for worry. Almost certainly there will be a surge in March when consumers’ mad dash to buy supplies in case of quarantines and other emergency preparations will stimulate activity. On the other hand, some of that spending will cut into April shopping. If the initial measures to stem the spread of the coronavirus are successful and movement outside the home widens, retailers may have to rely on the presence of the Easter holiday and a sense of relief to get consumer back out in stores and restaurants. In any case, for the moment the underlying trend for retail spending suggests it will be the mainstay of growth in the first quarter 2020, as it was in the third and fourth quarters of 2019.

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