Retail sales are strengthening so far in 2012, according to the Census Bureau. February sales jumped a robust 1.1% on a seasonally adjusted basis, the best monthly increase since last September. There was also good news for the annual pace of retail sales: for the first time in five months, the 12-month percentage change in retail sales rose, suggesting that the worrisome deceleration trend in consumer spending may have run its course.
As for last month's retail sales, today's update shows growth persisting across the board. Even after stripping out the volatile numbers for auto sales, spending was higher last month by 0.9%. Consumption, in other words, showed no signs of rolling over last month, confounding some analysts who argue that the economy's headed for trouble.
For the moment, even the threat posed by rising energy costs haven't taken a toll. Economist Jonathan Basile at Credit Suisse tells Bloomberg that today's numbers suggest that consumers are "unfazed by higher gas prices." As such, "this is a pleasant surprise on the overall picture for the economy."
Indeed, given all the worries swirling about, from the euro mess to worries about Iran and the Middle East, Joe Sixpack's resilience is striking. Of course, if job growth is stronger, and recent data suggests it is, it's really not all that surprising that retail sales are holding up rather well. Pessimists might be tempted to dismiss today's retail sales news as noise, but the fact that the year-over-year change inched higher for the first time in five months implies that the broad economic expansion has momentum. Retail sales climbed 6.5% for the year through last month, up from the 6.3% annual pace for January. Simply holding that pace is no small feat. Six-percent-plus represents a strong trend and one more sign that growth still has the upper hand.
"The big thing for the consumer is that the labor market has improved and there's income growth," says Stephen Stanley, chief economist at Pierpont Securities, via Reuters. What could go wrong? Gasoline is still on the short list of potential party crashers. "There is a risk if gasoline prices continue to rise," Stanley notes. "That will bite into household budgets."
In fact, it's already biting. As of last month, gasoline sales as a share of total retail sales climbed to 11.5%. The fallout so far has been minimal: the year-over-year change in retail sales less gasoline is holding at roughly 6%. But the pressure is building and if gasoline prices continue to rise, there will be a price to pay.
Average regular gasoline prices in the U.S. rose again last week to $3.83 a gallon, according to the Energy Information Administration. That's the highest since last spring, and just a stone's throw from the all-time highs of just over $4 reached in the summer of 2008.
The question, of course, is whether rising gasoline prices can derail the economy? There's widespread recognition that the U.S. has become less dependent on energy prices for growth, even over the last several years, and so rising fuel costs pose less of a threat. True, although energy efficiency will mean less if prices keep rising. It's also clear that quite a bit of the higher energy prices of late reflects a fear premium via worries over whether Israel will attack Iran. To the extent that this geopolitical risk is driving oil and gas prices higher, the future looks relatively hazy for making assumptions about economic growth.
The haze will surely thicken if gas continues to climb. On the other hand, an easing of tensions over Iran would bring the opposite effect. Figuring out which scenario is more likely is anyone's guess at this point. Meantime, the energy markets continue to vote for the pessimistic outcome.