Retail sales slid in February after a jump the month before, the Commerce Department said Tuesday, putting a spotlight on the effect of stimulus money on consumer spending, which is likely to move in fits and starts as the economy recovers.
Sales for February dropped 3%, government data showed, as consumers grappled with waning stimulus effects and severe winter storms in parts of the country. The decline was sharper than some economists had expected, but sales for the month were still higher than a year before, when the pandemic began to squeeze the economy. Retail sales sharply declined in March 2020 amid widespread shutdowns.
Sales in January had surged 7.6% — a gain that was most likely fueled by stimulus checks deposited at the end of last year. The increase in January, revised upward on Tuesday, benefited a broad array of retailers. Consumers spent more on goods, including at furniture sellers and department stores, as well as in restaurants, offering a positive sign for an economy that has been battered by the coronavirus outbreak.
The data suggests that the recovery in consumer spending is likely to be bumpy as the retail sector recovers from shifts in consumer spending and a new round of stimulus payments arrives in Americans’ bank accounts. Retailers saw largely uneven sales for the better part of last year, as consumers flocked to big-box chains and grocery stores and spent less at many apparel retailers and restaurants. Balancing out those categories is likely to take a combination of stimulus money, vaccinations, improvements in unemployment numbers and warm weather.
“It was obviously going to slow down a bit,” Mickey Chadha, a retail analyst at Moody’s Investors Service, said of the February sales.
“Going forward, the new stimulus checks that are going out as we speak are definitely going to be a positive for retail sales in March and through April,” he added. “All indications are, as the vaccines roll out through the country and the pandemic gets under control, this capacity to spend is only going to fuel further sales in retail.”
Economists at Morgan Stanley had forecast a 0.7% gain in February sales based on the outsize gains in January, and predicted that new stimulus money arriving in late March and early April would drive a spending surge in coming months.
Robert Frick, corporate economist at the Navy Federal Credit Union, which is able to track credit card spending across its members, said that “we’re really in the eye of the retail spending hurricane right now,” with the stimulus effects from last month and the package yet to come. He said he expected that the economy would come back this year, but that retail spending was “going to be very much a jagged line” as it increased.
“The crucial thing that we’re all looking at is when do we go from stimulus life support to the economy walking on its own two feet and people getting jobs and employment really surging?” Frick said. “That’s an open question.”
President Joe Biden signed into law a nearly $1.9 trillion relief plan last week, and direct payments of $1,400 per person are already making their way to the bank accounts of low- and middle-income Americans.
The law, known as the American Rescue Plan, also extends $300 weekly federal jobless benefits through Sept. 6 and provides billions of dollars to distribute coronavirus vaccines and relief for schools, states, tribal governments and small businesses struggling during the pandemic.
“Some of that money is bound to flow into retail — it just has to,” Chadha said.
The major changes in consumer habits during the pandemic have been on display in recent weeks as retailers have reported their holiday and full-year earnings results. (Most retailers end their fiscal year at the close of January to fully capture holiday spending.)
For example, Walmart reported fourth-quarter revenue that hit a record $151 billion, up 7.3% from a year earlier, while Target also reported an increase in the same period, including a surge in digital sales. Consumers have gravitated to the chains in the past year, both in person and online, and increasingly used services like curbside pickup.
But the story was different at Macy’s and Gap, one of the country’s biggest operators of mall stores, which posted sales declines in the fourth quarter and grim annual revenue drops as many consumers stayed away from malls and had fewer reasons to buy new clothes in an isolated environment. Gap, which also owns Old Navy and Banana Republic, pointed to stay-at-home restrictions and store closures as reasons for its tumbles.
Still, Gap had a positive outlook for the back half of this year. “As vaccines roll out and stimulus checks begin, we currently view the second half of 2021 favorably, reflecting a likely return to a more normalized prepandemic level,” Katrina O’Connell, Gap’s chief financial officer, said on an earnings call this month.
Jeff Gennette, Macy’s chief executive, said in an interview this month that the company was looking for “clues on what’s going on with wedding dates, what’s going on with restaurant reservations, what are the signs that communities are starting to open up.” That would help the company determine how consumers were planning “wearing occasions” this year, he said.
The retail sales data for February showed declines from January across the board, including in categories like furniture, electronics and appliances, building materials and apparel. But Frick, of Navy Federal Credit Union, said the decline, which was affected by the cold weather, needed to be read in context.
“You have to factor in that it was a decline from an exceptionally strong January,” he said. “It was still $33 billion above February of last year, which of course was the last month before retail spending fell of a cliff.”