US Retail Sales Declined 0.6% in February; Initial Claims Fell Sharply in the Latest Week

• US retail sales unexpectedly declined for a third straight month in February 2015, falling by 0.6% after 0.8% and 0.9% declines in January 2015 and December 2014, respectively. Market expectations had been for a 0.3% rise in February.
• Expectations of an increase were in part premised on a monthly increase in gasoline prices sending nominal gasoline station sales upward for the first time since May 2014. Such occurred, with a 1.5% increase in gasoline station sales in February; however, offset came from a larger than expected 2.5% decline in motor vehicle sales as colder than normal temperatures appeared to delay auto sales in the month.
• Control retail sales, which exclude sales at auto dealerships, gasoline stations, and building material stores, also were weaker than expected, holding steady in February following a downwardly revised 0.1% decline (was +0.1%) in January 2015 but an upwardly revised 0.2% dip (was -0.3%) in December 2014. Market expectations had been for a 0.4% increase in February.
• In a separate report, initial jobless claims declined by 36,000 to 289,000 in the week ending March 7, 2015 from a revised 325,000 (was 320,000) reading for the previous week. The four-week moving average of initial claims declined to 302,250 from 306,000 for the prior week.

US nominal retail sales declined for a third consecutive month in February 2015, falling by 0.6% (well below expectations for a 0.3% gain) to build on 0.8% and 0.9% declines in January 2015 and December 2014, respectively. Sales at gasoline stations rose by 1.5%, thereby marking the first increase since May 2014 and following outsized, and price-led, 9.8% and 7.5% declines in January and December, respectively. Weakness in February retail sales was more a result of a 2.5% decline in motor vehicle sales, because colder than normal temperatures appeared to keep shoppers at home in the month. The decline in motor vehicle sales was more pronounced than the 1% drop that we had expected based on the earlier-released unit vehicle sale numbers. Building material store sales declined by 2.3% while 'control' sales, which exclude the auto, gasoline station, and building material store sales were also modest, holding steady in February after falling 0.1% (previously a 0.1% increase) in January and declining 0.2% (was -0.3%) in December. Sales at food services and drinking places also may have been affected by colder than normal weather, posting a 0.6% decline in February after a revised 0.2% decline (previously a 0.8% increase) in January.

While disappointing, much of the weakness in February retail sales likely reflected the effect of extreme winter weather that may have kept shoppers at home in the month. To the extent that this is the case, the slowing reflects delayed rather than lost sales with a likely rebound in March provided that temperatures warm closer to seasonal normals. Today's report, on its own, pointed to some downside risk to our forecast for first-quarter 2015 consumer spending to rise to 2.8% at an annualized rate, alongside an expected 2.8% gain in GDP; however, some offset to weather-related weakness in February should come from increased spending on utilities, which is not captured in the retail sales report, and a stronger showing in March could still offset the weaker than expected February retail sales. We expect consumer spending will remain a solid contributor to overall GDP growth during 2015, thereby reflecting the solid pace of improvement in labour markets, low interest rates, and increased purchasing power resulting from recent sharp declines in gasoline prices.