NEW YORK (AP) - In February, shoppers increased their spending, particularly on cars and clothing, after a downturn in January caused by severe winter storms. According to the Commerce Department, retail sales rose by a better-than-expected 0.6% in February, recovering from a revised 0.1% decline in January.
However, there are concerns regarding the ongoing war in Iran, which has caused gasoline prices to surge, potentially impacting consumer spending amidst already elevated inflation levels. The average price for a gallon of regular gasoline crossed the $4 mark on Tuesday for the first time since 2022, reaching $4.06 by Wednesday. This marked a significant increase of $1 per gallon since before the conflict began.
Sales at motor vehicle and auto parts dealerships rose robustly by 1.2% in February. Excluding this sector, retail sales experienced a growth of 0.4%. Clothing and accessories stores saw a notable increase of 2%, while electronics and appliance stores recorded a 0.5% rise. Sales from online retailers increased by 0.7%, and health and personal care stores witnessed a 2.3% uptick.
The data provides an incomplete perspective on consumer spending, omitting categories such as travel and hotel stays. However, the food services sector, represented by restaurants, did show an increase of 0.4% in sales.
Ksenia Bushmeneva, an economist at TD Bank Group, described the retail sales report as solid, yet cautioned that rising gas prices might spur overall sales in March, as government retail sales figures are not adjusted for inflation. She indicated that real spending could decline as consumers might offset higher fuel costs by reducing their expenditures on discretionary items, particularly in travel and recreation.
The Iran war, which began on February 28, has led to the shutdown of the Strait of Hormuz, a critical shipping route responsible for transporting one-fifth of the world's oil supply. Consequently, the price of Brent crude oil, the international standard, has surged more than 45% since the conflict's onset. The cost of diesel fuel has escalated even more rapidly than gasoline, further driving up transportation costs for businesses. Economists predict a related inflation increase may manifest as soon as this month.
Initially, economists anticipated that a significant surge in tax refunds would bolster spending at the start of the year. Yet, increasing gas prices may diminish the benefits from these refunds. Samuel Tombs, chief economist at Pantheon Economics, noted the regressive nature of the financial hit from higher gas prices, which disproportionately affects lower-income households. In contrast, the distribution of tax refunds is more equitable. He further noted that the influx of refunds is expected to wane by late April, potentially leaving consumers vulnerable to sustained high prices.
According to Tombs, the rise in gas prices could diminish real household incomes by approximately $15 billion per month. Patrick De Haan, an analyst at GasBuddy, emphasized that the impact of gas prices can be assessed based on the proportion of household income being used for fuel. He indicated that gasoline expenditures are nearing 3% of median household income. Once this expenditure reaches about 4% to 5%, it typically compels consumers to cut back on discretionary spending.
Several retailers have started to express concerns about the impact of rising gas prices on consumer behavior. Daniel Erver, CEO of Hennes & Mauritz, remarked that energy prices could exert a significant influence on consumer habits if the war persists. Similarly, Darren Rebelez, CEO of Casey's General Stores, stated that a substantial reduction in customer spending is unlikely until gas prices approach $5 per gallon.
