U.S. retailers and manufacturers slumped in February due to winter storms and supply-chain disruptions, but a broader economic rebound appears poised to accelerate this spring because of the easing pandemic and another round of government stimulus.
Retail sales—a measure of purchases at stores, at restaurants and online—fell by 3% in February compared with the prior month, the Commerce Department said Tuesday. The decline followed robust January sales that were propelled by stimulus payments to households from the December pandemic-relief package. January sales advanced a revised 7.6%, up from the earlier estimate of a 5.3% increase.
Severe winter weather wreaked havoc across a large swath of the U.S., affecting retail shopping and manufacturing output last month. The Federal Reserve separately said industrial production fell a seasonally adjusted 2.2% in February compared with January. Manufacturing, the largest component in the industrial-production index, drove the decline because of the weather disruptions and supply shortages in semiconductors for autos, the Fed said.
Consumers meanwhile spent less on autos, furniture, electronics, home improvement, healthcare and clothing. Sales at food and beverage stores were unchanged, while sales at gas stations were up strongly, by 3.6%, as gas prices have accelerated this year.
Despite the February decline, retail sales were up 6% over the last three months compared with the same period a year earlier, according to the Commerce Department.
February is typically a quiet month for retail sales, as stores gear up for the spring selling season, including Easter. Economists expect spending to accelerate in the coming months as additional government stimulus is distributed and Covid-19 vaccinations lead to a corresponding decline in cases and pickup in employment levels as businesses open up more fully.
The upwardly revised January sales figures “took the sting out of the negative surprise” in the February data, Aneta Markowska and Thomas Simons, economists at Jefferies LLC, said in a research note.
Federal stimulus checks, which many households will receive as part of the $1.9 trillion coronavirus aid plan signed into law last week, create “a massive tailwind for consumer demand this spring,” the economists said.
“The checks will coincide with broadening vaccine distribution and warmer weather, which will accelerate the return of high-contact activity, providing more avenues for consumers to spend their stimulus payments,” they added.
JPMorgan Chase & Co.’s tracker of credit- and debit-card transactions showed consumer spending on a seasonally adjusted basis climbed in early March after dropping off in February.
Other signals of a pickup in the economic recovery have emerged. After cutting workers at the end of 2020, U.S. employers added 379,000 jobs in February, and the unemployment rate ticked down to 6.2%. The U.S. manufacturing industry has shown steady signs of expansion.
Richard Woolley, owner at Weathered Vineyards in New Tripoli, Pa., said he was optimistic about the outlook for business as warmer months approach and federal stimulus efforts permeate the economy.
“You can’t pump trillions of dollars into the U.S. economy and not have some of it land here,” he said. “People will spend it. We’ll see some feedback from that at some point and that will probably lead to an OK 2021.”
He said February was a slow month for sales, with revenue at the winery during Valentine’s Day weekend down 50% compared with last year. Mr. Woolley said the business is currently relying on curbside pickups and outdoor service, because of state coronavirus mandates that restrict its ability to hold wine tastings indoors. Cold weather last month damped the number of customers willing to sit outside, he added.
As part of the federal government’s most recent relief package, many Americans will receive direct $1,400 cash payments. The package also extended enhanced unemployment benefits and expanded the child tax credit.
Meanwhile, new reported coronavirus cases in the U.S. are hovering near their lowest levels since early October, and President Biden has directed states to make all American adults eligible to sign up to receive a vaccine by May 1.
Those factors combined could help propel consumer spending on services, such as in the leisure-and-hospitality sector, where consumer outlays and employment gains have lagged behind.
“The bottom line is all about the pandemic. Once the pandemic is behind us, you’re likely to see a big rebound in consumer services,” said Scott Brown, chief economist at Raymond James Financial. “People are likely to go nuts, we think, in terms of wanting to get out there and do stuff.”
U.S. households broadly are sitting on cash potentially ripe for spending, as they boosted savings during the pandemic. Research has suggested that Americans have spent previous rounds of direct cash payments on bills, food and other goods and to pay down debt, while also stashing away some of the funds.
“ ‘Consumers have the ability to spend, willingness to spend.’ ”
Fiscal stimulus “is definitely adding purchasing power to households,” said Jack Kleinhenz, chief economist at the National Retail Federation. “The question is how much will actually be spent” in the coming months, he said.
Data firm IHS Markit on Tuesday lifted its forecast for first-quarter gross domestic product growth to 5.1% from 4.9%, citing the upward revisions to January’s retail sales data. Consumer spending is a key component of GDP, accounting for roughly two-thirds of economic output.
States and municipalities, meanwhile, have continued to relax restrictions on businesses and activity as cases have eased. Still, public health officials have warned of a potential resurgence in infections amid fatigue among Americans with precautions such as mask wearing and social distancing.
“Consumers have the ability to spend, willingness to spend, but on the downside, it’ll get contorted if the virus picks up again or variants put a speed bump in our ability to contain it,” Mr. Kleinhenz said.
Tom Scheiman, owner of b.a. Sweetie Candy Co. in Cleveland, said foot traffic and business at his candy store have picked up in recent months. The company has a 40,000-square-foot facility that is open to the public and it sells candy, old-fashioned sodas and ice cream.
The company is also a wholesale distributor of candy to local grocery and convenience stores. Mr. Scheiman said that portion of the business has too been on an upswing.
“You can tell by the way people are buying and the way they’re shopping, there’s no reluctance,” he said. Shoppers “have more money in their pocket,” he said, adding that the size of his customers’ average purchase had also increased.
The pandemic forced the retail store to close for 10 weeks around Easter last year, causing a loss of about $2 million in sales. This year, things look different.
“We’ve turned a corner substantially,” Mr. Scheiman said.
In turn, he said he had added three full-time employees to his staff and raised wages for his workers by an average of 12% since the start of the year.
—Xavier Fontdegloria contributed to this article.
Write to Amara Omeokwe at [email protected]
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