To be sure, retail sales in February rose a solid 1.1% and what got a whole lot of
folks very excited was the upwardly revised 0.6% gain in January (originally
reported as +O.4%). It now looks as though real GDP growth in Q1 will be closer
to a 2% annual rate than 1% — but that this still represents a visible slowing
from 3% in Q4 seems to be of little matter for Mr. Market- Excluding autos, sales
rose a healthy 0.9%- The “core control" ﬁgure that feeds into GDP was up 0.5%-
A good result, but this goes to show how gas prices have inﬂuenced the data (up
3-3% on the month, accounting for one-third of the headline tally).
The data were ﬁrm but a dose of caution is required. Retail sales represent 40%
of consumer spending — it is not the complete picture. In fact. there has been a
pretty wide gap between nominal retail sales growth and real PCE trends. Real
consumer spending is barely growing as we have discussed recently and what
the retail sales miss is spending on services, which is the bulk of household
outlays- And utility spending has plummeted in recent months because nobody
has had to heat their homes or apartments given the balmy weather. This has
been a huge windfall; call it $40 billion of savings in the past three-four months.
And it has gone into retail cash registers.
Do not dismiss the weather impact here and the skew on a range of data
releases. But that effect is over — spring is here. However, what has not gone
away and lies ahead are the dampening effects on discretionary spending from
the run-up in gas prices. This has already shown up in the latest presidential
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