February Retail Sales Growth Should Be Slow but Steady

Consumers shopping in the mall
Consumers shopping in the mall

Even after February showed a bipolar personality, retail sales continue to stabilize, and major merchants are expected to show mild improvement in sales when they report monthly results this week.

Most forecasts expect February will show 3% growth or better over the same time last year when major merchants report monthly tallies on Thursday. Industry observers say shoppers are opening their wallets more -- or at least wealthy shoppers are, thanks to the rising financial markets. But lower-income consumers remain cautious due to the stagnant job and housing markets. Most retailers have accepted that new reality and are planning for slow sales growth this year.

"We saw some good results in February. We don't really see any evidence that momentum is building. We say that momentum is continuing to hold," says Mike Berry, director of Industry Research for MasterCard Advisors SpendingPulse. Many observers have noted consumer confidence is rising to near pre-recession levels and spending on some areas -- most notably luxury -- is back to peak levels. Low- and moderate-income shoppers, however, still need to be prodded to buy with discounts and promotions.

Most Sectors Saw Gains

February was an up-and-down month, hit by bad weather but helped by the Valentine's Day holiday and Presidents' Day sales, according to the weekly tallies of the International Council of Shopping Centers.

"Overall, the month's trend performance was good and likely helped by an improving economy, despite some increasing drag from rising gasoline prices," said chief economist Michael Niemiera, in a report. Despite sales rising one week and dropping the next, he forecasts that February totals will show growth of 2.5% to 3% over last year.

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Most retail sectors showed growing sales in February, according to SpendingPulse, which tallies sales on payment methods including credit cards, checks and cash. Most apparel categories -- nonessential purchases that shoppers put off in hard times -- showed sharp increases, especially children's clothing, which was up 10.7%, and men's apparel, up 7.4% year-over -year.

Even furniture, a category that's been hit hard by the weak housing market, got a bump from Presidents' Day sales and rose 4% in February, according to SpendingPulse.

Furniture sales are still down from where they were three years ago, before the housing market tanked, "but 4% is a pretty good number compared to what we have been seeing for so long," says Berry. "It's nice to see that number recover, but realistically. . .until the housing market recovers, we can't really expect to go back to the area where we were in 2008. And we're still a ways away from that."

Another Shock Is Coming

Luxury sales, excluding jewelry, were up 1.7%, after spiking during the holidays. But jewelry sales were up 14.4%, thanks to Valentine's Day, with big-ticket baubles selling better than moderately priced items, notes Berry. "In the high-income [households] category, consumer confidence has recovered well and a lot of that is tied to the stock market," he says.

And low-income households are about to get another shock, as tensions in the Middle East keep pushing oil prices higher. Rising gas prices didn't have much of an effect on February sales, but they could start factoring into spring sales, says Berry. Gas prices don't start affecting retail sales until they hit around $3.20 a gallon -- roughly where they are right now, he notes.

"Keep an eye on gas prices, because when the economy was really heating up back in 2008, that had kind of started to put the brakes on things, even before the housing and financial crisis hit," Berry says.

March and April retail sales will be worth watching, he adds, because just as retail comes out of the post-holiday slump, merchants will be facing tough comparisons to an unexpectedly strong spring last year.

"It was really in April-May-June last year when things reverted back. After the first quarter, it looked like we might be moving into a recovery in consumer spending," he says. "We don't seem to be building any more, but we haven't lost momentum from what we saw in the fourth quarter. It will be interesting to see what happens next month."