Easing Health Restrictions Support Retail But Surging Gas Prices a Headwind
Retail sales mixed in February. Consumer spending increased a modest 0.3 percent last month, although much of the gain was driven by climbing fuel prices. Excluding energy costs, core retail sales retreated 0.4 percent in February, as widespread inflation eroded some consumption. Spending was nevertheless 15.8 percent above the same level last year, indicative of an overall more active consumer base. In a potential benefit to physical properties, the largest drag last month came from online sales, which fell 3.7 percent. As the omicron variant dissipated, more Americans were able to shift their behavior and visit tangible retail locations.
Restaurants and bars show renewed performance. After being hamstrung by the winter surge in COVID-19 cases, more patrons returned to eating and drinking places in February, lifting sales 2.5 percent over the month. Year-over-year, foot traffic to dining establishments has climbed 19 percent nationwide, leading to a 33 percent annual growth rate in sales — the second highest jump among the major retail categories. California and New York posted significant gains, expanding 49 percent and 51 percent, respectively. These areas recently lifted restrictions, which improves general comfort and will allow more consumers to visit these establishments. The outlook for bars and restaurants is bright as the weather improves, though inflation and labor costs could become notable headwinds.
Gasoline prices remain wildcard for retail sales. Elevated demand for fuel has outstripped supply, sending energy prices higher over the past year. Since February 2021, sales at gasoline stations have jumped 36.4 percent — the largest rise among all retail categories. Last month alone, spending increased 5.3 percent as gasoline prices rose to an average of $3.61 per gallon. The war in Ukraine has further disrupted the energy market and pushed fuel prices higher in recent weeks. By mid-March, the per-gallon cost had jumped to $4.41, putting further pressure on core retail sales as consumers spend more on fuel. A recent decline in the per-barrel price indicates there is some relief on the horizon.
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