U.S. Economic Brief || Retail sales tick up in nominal terms but decline in real terms in March

Retail sales tick up in nominal terms but decline in real terms in March

*Retail sales increased 0.5% m/m in March following an upwardly revised 0.8% m/m gain in February, with nominal retail sales 6.9% higher than in March 2021. However, broadening inflationary pressures and the recent surge in prices at the pump weighed on real retail sales, which declined 0.7% m/m in March (Chart 1). Accelerating headline inflation has eroded real purchasing power, and real disposable income has declined for seven consecutive months. Thus far, households have dipped into savings and drawn on credit to smooth consumption, but, amid declining consumer confidence and heightened inflation and inflationary expectations, data suggest that consumption growth in both real and nominal terms is moderating.

*Control group retail sales (excludes gasoline stations, food services and drinking places, building materials, and auto sales), which factor directly into Q1 GDP, fell 0.1% m/m on the heels of a 0.9% m/m decline in February, pointing to more modest real consumption growth in Q1 (Chart 2). The decline in March control group retail sales partly reflects a sharp 6.4% m/m drop in sales at non-store and electronic retailers as the effects of the omicron wave of infections ebbed.

*Sales at grocery stores and gasoline stations jumped in March. Nominal spending surged at gas stations, rising 8.9% m/m following a 6.8% m/m increase in February, reflecting the 18.3% m/m jump in gasoline prices in March, lifting the three-month increase in gasoline station sales to 15% (Chart 3). In nominal terms, sales at gasoline stations increased by $5.2 billion, accounting for a significant share of the m/m increase in nominal retail sales - excluding gas stations, retail sales declined 0.3% m/m. Sales at food and beverage stores increased 1% m/m, lifting their yr/yr increase to 8.3%, and are well above the pre-pandemic level.

*Nominal retail sales growth in March was relatively broad based, with ten of the thirteen major retail sales categories advancing over the month. Notably, motor vehicle and parts dealers’ sales declined 1.9% m/m, reflecting ongoing disruptions to production and supply constraints amid depleted inventories, with supply dislocations likely to be exacerbated by lockdowns in China and Russia’s invasion of Ukraine (Chart 4).

*Retail sales in categories associated with economic reopening as the omicron wave of infections wanes exhibited continued strength. Sales at food services and drinking places rose 1% m/m following an upwardly revised 3% m/m increase in February and are likely to rise further as the summer holiday season approaches (Chart 5). Sales at clothing and accessory stores jumped 2.6% m/m, while sales at sporting goods, hobby, book, and music stores rose 3.3% m/m following a 3.5% increase in February. The moderation in retail sales growth may partly reflect the rebalancing of consumption from goods to services, and data on personal consumption of services in March released later this month will merit scrutiny.

Chart 1. Nominal Retail Sales and Real Retail Sales

Chart 2. Control Group Retail Sales (ex. autos, gas stations, & building materials)

Chart 3. Retail Sales – Gasoline Stations

Chart 4. Retail Sales – Motor Vehicle & Parts Dealers

Chart 5. Retail Sales – Food Services & Drinking Places

Mickey Levy, mickey.levy@berenberg-us.com

Mahmoud Abu Ghzalah, mahmoud.abughzalah@berenberg-us.com

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