But Still Up Sharply in 2021; With Stimulus, Consumer Spending to Drive Growth This Year

• Retail sales fell 3.0% in February, after a 7.6% increase in January. Stimulus payments have boosted consumer spending so far this year.
• Sales fell in all major categories over the month, except for gasoline.
• Sales were up 6.0% in February from one year earlier, just before the pandemic came to the U.S. Government stimulus efforts have led to a big increase in consumer spending on goods, despite the loss of millions of jobs.
• With the government providing additional stimulus funding, consumer spending growth will be very strong in 2021 and into 2022.

Retail sales, including food service, fell 3.0% in February. This was the biggest one-month decline since they plunged 14.7% in April 2020, as stores closed and consumers stayed home at the beginning of the pandemic. Retail sales rose 7.6% in January, revised higher from a 5.3% increase. Even with the February drop, retail sales were up 6.0% in the first two months of the year.

Sales declines were broad-based in February. Retail sales excluding autos were down 2.7%, and sales excluding autos and gasoline were down 3.3%. Control sales-sales excluding restaurants, autos, gasoline and building materials, and which go into nominal consumer spending in GDP-were down 3.5% in February, but that followed a huge 8.9% increase in January.

Sales of autos and parts fell 4.2% in February. But sales at gas stations rose 3.6% over the month, largely because of higher prices. Sales fell in most other major categories, including a 5% drop for general retailers and a 4% drop for furniture and home furnishings. Sales even fell 5% for non-store retailers (primarily online sales) in February, although that was after a 17% increase in January. Restaurant sales fell 2% over the month.

Despite the big February decline, sales were up in most categories from February 2020, right before the pandemic started to disrupt consumer spending patterns. Overall sales were up 6% year-over-year in February, with sales excluding autos up almost 5% and sales excluding autos and gasoline up 6%. Control sales were up more than 10% in February on a year-ago basis. Sales were up in most categories from one year earlier; non-store retailers were the big winners, with sales up more than 25% as consumers did a lot more online shopping with the pandemic. But food service (restaurant and bar sales) were down 18% in February from the same period in 2020, as consumers remained reluctant to go out and some states maintained restrictions on dining in.

Retail sales have been on roller coaster ride over the past year. They plunged in March and April of 2020 as stores closed and consumers stayed home, but then surged in May and June as shoppers ventured out, businesses reopened, and stimulus payments and unemployment insurance benefits supported spending, despite massive job losses. Total retail sales in June were actually above their pre-recession level. Sales have seesawed since then, up and down depending on coronavirus case levels, government restrictions, and stimulus payments. But they have risen overall since mid-2020, and consumer spending on goods has been a bright spot for the U.S. economy as government payments have allowed many households to maintain, or even increase, their spending.

Sales will get another boost in the spring with new stimulus payments hitting bank accounts in March. The extension of bonus unemployment insurance payments will also support household purchases, even with employment in February down by more than 9 million from before the pandemic. Increasing vaccinations, falling coronavirus cases, very low interest rates, and better weather will also support retail sales growth throughout 2021 and into 2022. But spending growth will slow as vaccinations and reduced worries about the coronavirus lead consumers to start purchasing more services at the expense of good; services spending is still well below its pre-pandemic level, with greatly reduced spending on restaurants, travel, and entertainment.

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