Soft auto sales dragged down overall retail sales in February and consumers did not spend enough to pick up the slack.
Retail sales decreased by one-tenth of a percent from January, according to Commerce Department figures released Wednesday, to a seasonally adjusted $447.31 billion. January retail sales were also one-tenth of a percent lower than in December, which was originally estimated to have shrunk by three-tenths of a percent.
Auto sales are the largest part of the retail economy, with one in every five dollars spent, and their steady decline since October has led the overall retail figures downward since November. If vehicle and parts sales weren’t counted, retail sales would have increased by two-tenths of a percent in February.
Replacing cars and trucks that were lost in the Texas and Florida hurricanes gave auto sales a short-term boost that tailed off in the months following, said economist Tom Simons, an economist with the investment bank Jefferies.
In Houston, where Hurricane Harvey caused $125 billion in damages after landing in August, Steven Wolf saw sales at his auto dealerships skyrocket.
“Within a week of the flood we were overrun with customers buying cars,” said Wolf, vice president of Helfman Motors, a family business of five car dealerships in Houston.
By the middle of October, most people had replaced their vehicles, said Wolf, the past chair of the Houston Automobile Dealers Association.
As auto sales have dropped off, consumers have not spent enough to make up the difference.
Consumers do not feel confident enough in their future earnings to spend. Since September, they have been spending less and less each month. Their incomes have not grown much in recent years, and any hopes of spending spurred by President Donald Trump’s tax cuts — which took effect with all employers in mid-February — have not yet materialized.
The tax cut may never boost sales enough to a degree that increases overall retail growth. Lower-income households, the ones most likely to spend disposable income right away, will receive a cut as small as $60, while no household in the lower 60 percent of earners will receive more than an increase the equivalent of a fifty-cent hourly raise for a full-time worker, according to figures presented in an analysis by the Tax Policy Center.
“I don’t think they’re gonna be profligate with few extra crumbs in their paycheck,” said Robert Brusca, chief economist at FAO Economics, of low and middle-income consumers.
To be sure, the economy could just be leveling off after strong growth in the last fourth of 2017.
“It’s payback for an incredibly strong, overly strong fourth quarter,” said Stephen Gallagher, chief US economist at bank Societe Generale.
Other silver linings include the 1.9 percent increase in sales of building materials, as well as the possible increase in auto sales in the months ahead.
While consumers may not expect their incomes to rise, the auto industry has been enticing them to buy with rebates and other incentives, and by financing people without good credit.
“I think that’s a big driver in why our business is still pretty strong right now,” said Wolf.