Is It A Recession Yet? February Retail Numbers Send Mixed Signals

Economists looking for a clear sign of where consumer spending is heading didn’t get much help from the February retail numbers released today by the Commerce Department.

The report shows retail sales declined 0.4% in February, compared to January, but were up 5.4% compared to a year earlier, February, 2022. The numbers were read both as a sign that the long anticipated spending recession has begun, and as proof of the ongoing resilience of the U.S. consumer.

February’s month-over-month drop in spending followed unexpectedly robust spending in January, when retail sales rose 3.2% over December 2022. Total sales for December 2022 through February 2023 were up 6.4%, compared to the same three months a year earlier.

The National Retail Federation, the retail trade association, said the numbers show that core retail sales – sales excluding automobile dealers, gas stations, and restaurants – actually rose slightly, month over month, in February, up 0.5% from January. Core retail sales were up 6.9% year-over-year in February, according to the National Retail Federation.

Online, beauty, grocery show gains

The National Retail Federation (NRF) also reported that all but one of the nine categories in core retail were up year-over-year, and five of the nine were up on a monthly basis.

Here’s how the categories fared:

• Electronics and appliance stores were the one category that was down year-over-year, down 2.2% unadjusted compared to last February. The category was up 0.3% month-over-month seasonally adjusted.
• General merchandise stores were up 0.5% month-over-month seasonally adjusted and up 10.7% year-over-year unadjusted.
• Online and non-store sales were up 1.6% month-over-month seasonally adjusted and up 8.5% unadjusted year-over-year.
• Health and personal care store: up 0.9% monthly, adjusted seasonally and up 8% unadjusted year-over-year.
• Grocery and beverage stores: up 0.5% monthly, adjusted seasonally; up 5.5% annually, unadjusted.
• Clothing and clothing accessory stores: down 0.8% monthly, seasonally adjusted; up 4.1% annually, unadjusted.
• Sporting goods stores: down 0.5% monthly, seasonally adjusted; up 3.4% annually, unadjusted.
• Building materials and garden supply stores: down 0.1 monthly, seasonally adjusted; up 0.7% annually, unadjusted.
• Furniture and home furnishings stores: down 2.5% monthly, seasonally adjusted; up 0.4% annually, unadjusted.

The NRF is scheduled to issue its retail sales forecast for 2023 on March 29.

The NRF maintains that year-over-year comparisons are better indicators of sales growth than monthly fluctuations. NRF Chief Economist Jack Kleinhenz, in a statement released with the NRF report, said that February “is typically the slowest month of the year,” and that monthly fluctuations are to be expected as a result.

Kleinhenz also commented that “seasonal adjustment factors the government is applying to the monthly data to account for irregular post-pandemic spending patterns make it difficult to accurately measure the strength of the consumer.”

The Conference Board Chief Economist Dana Peterson, in a media briefing last month, said leading economic indicators have been signaling since last year that a short and shallow recession was due to arrive in 2023, most likely in the first or second quarter. Most of the country’s major retailers, in their earning reports last month, said they are anticipating a significant spending slowdown.

Both the retail sales optimists and pessimists agree that there are a lot of reasons for American consumers to be tightening their belts – inflation, high housing costs, and now worries about bank collapses.

Year of the Dollar Store?

One indicator that could be a signal of how much belt tightening is occurring is a report last month from foot-traffic analytics firm Placer.ai predicting that 2023 will be the “Year of the Discount Store”.

Placer.ai found that four discount stores – Dollar TreeDLTR
, Family Dollar, Dollar GeneralDG
, and Five BelowFIVE
– had the biggest gains in foot traffic and shopper visits throughout the pandemic and in 2022. Compared to pre-pandemic January 2020, foot traffic was up in January 2023 by 21.2% at Dollar Tree; 19.9% at Family Dollar, 19.2% at Dollar General, and 66.6% at Five Below.

On a year-over-year basis, visits were up 10% at Dollar Tree, 18% at Five Below, and 3.7% at Family Dollar, according to Placer.ai. But even in the discount space there were mixed signals. Dollar General, had a year-over-year decline of 3,1% in January, according to Placer.ai.