With retail sales the highest they’ve been in five months, rising gasoline prices don’t seem to be fazing consumers, yet.
Retail sales rose 1.1% in February, in line with economists’ expectations. Though higher gasoline prices accounted for some of the increase in spending, retail sales in February were still very strong with gain in 10 of the 12 other categories in the report. The Commerce department revised January’s gains upwards to 0.6%, making February’s gains more significant.
This February, consumers went shopping, ate out at restaurants and bars, and indulged in their hobbies. The spent a whole lot more on discretionary items like clothes, music and books.
“This is a part of a trend,” said Millan Mulraine, an economist with TD Securities. “These reflect a more confident consumer.”
This is a sign that consumers, at least for now, are showing a great deal of resiliency to higher gasoline prices. This could be because of an unseasonably warm winter, said Mark Vitner, chief economist at Wells Fargo.
“It’s been so warm that folks were paying more for gasoline but they were paying less for home heating,” he said.
Consumers spent a lot less on furniture, but shelled out more money for building materials and gardening supplies, which could be indicative of a slightly stronger housing market. Auto sales, which were surprisingly low in January, bounced back this month.
But this consumer resiliency might not last once spring really kicks in and people start driving more, Vitner said. “Now that daylight savings time has kicked in, higher gasoline prices are likely to take a bigger toll on consumer spending,” he said.
Gasoline prices would have to hit the higher $4 range to really make a dent in the economy, said Jonathan Basile, an analyst at Credit Suisse.
“Unless you get there, it’ll be continued chatter on whether or not it will stop the consumer in its tracks, or stop the US economy in its tracks,” he said.
Though rising energy costs are usually linked to higher inflation, it is unlikely it will make enough of an effect for consumers to feel the pinch.
The Federal Open Market Committee, in a statement released after their meeting on March 13, said that, “The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.”
Even though employers added 227,000 jobs in February, there’s still a lot of excess capacity in the labor market and no major wage pressures. This lack of wage pressures is keeping the rate of inflation low, said Basile.
“It’s a pretty solid report,” said Vitner, “and it should remove some of the worry about the consumer being overwhelmed by higher gasoline prices.”