Retail sales for February will be released tomorrow. One of the key questions is how much the payroll tax hike is slowing personal consumption expenditures this year, and the report tomorrow might give some hints.
However, since gasoline prices increased sharply in February (from an average of $3.39 per gallon in January to $3.74 per gallon in February), gasoline sales will push up the headline number for retail sales – so it will be important to look at the details.
Another complicating factor is that the fiscal agreement was reached at a very late date, delaying tax refunds this year – and that has impacted sales at some retailers such as Walmart.
From Merrill Lynch analysts on retail sales:
We expect a weak retail sales report in February. Although the headline should show modest improvement in spending, the guts of the report likely will reveal weakness. We forecast total retail sales to increase 0.6%, owing to higher gasoline prices and a pickup in building material sales. Core control retail sales, which nets out autos, gasoline and building materials, is likely to decline 0.3%. … There are four factors weighing on consumption in February: delayed tax refunds, burden of higher gasoline prices, poor weather conditions and lower take-home pay from the payroll tax hike in January. … Looking ahead, a key question will be whether this softness in consumer spending persists. This likely will be determined by the pace of job growth, and hence labor income, and the impact of wealth appreciation on consumer confidence. In our view, the risk is that consumer spending will remain sluggish over the next few months.
Wednesday economic releases:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.
• At 8:30 AM, Retail sales for February will be released. The consensus is for retail sales to increase 0.5% in February (boosted by higher gasoline prices), and to increase 0.5% ex-autos.
• At 10:00 AM, the Manufacturing and Trade: Inventories and Sales (business inventories) report for January. The consensus is for a 0.3% increase in inventories.