Weather, Gas Prices Pressure Retail Sales, Inventories Rise

- Advance Retail Sales for February rose .1% versus estimates of a .3% gain and unch. in January.
- Retail Sales Less Autos for February fell -.1% versus estimates of a .3% gain and a .2% rise in January.
- Business Inventories for January rose .2% versus estimates of a .2% gain and unch. in December.

BOTTOM LINE: Retail sales in the US rose less than forecast last month as winter storms and a surge in gas prices limited spending, Bloomberg said. The fact that it was the coldest February in 28 years with numerous winter storms played a large part in the weakness. The prior months’ milder-than-normal weather likely also played a part in February’s shortfall. As well, the recent surge in gasoline prices despite the fall in oil is temporary and unsustainable, in my opinion. Moreover, the Johnson Redbook weekly retail sales report today showed the largest weekly jump in sales in 11 months. Weekly sales rose an above-average 3.4% this week versus a 2.8% gain the prior week. I believe retail sales will surprise on the upside this spring as Americans’ net worth continues to hit records, wages continue to substantially outpace inflation, pent-up demand spurs spring clothing sales, energy prices fall, confidence rises, home sales stabilize at relatively high levels, interest rates remain low, unemployment remains historically low and stocks rise further.

Inventories at US businesses rose in January as sales declined, Bloomberg reported. At the current sales pace, the amount of goods on hand will last 1.3 months. Other recent data suggest inventory de-stocking may be slowing. The ISM said last week that its services inventory index for February rose to 50.5 from 47 in January. As well, the ISM manufacturing inventory index surged to 44.6 from 39.9 in January. I continue to believe substantial inventory liquidation this quarter will lead to below average GDP growth. However, inventory rebuilding should begin adding to growth during the second quarter.