By Spencer,

It is interesting how today’s report on nominal retail sales is being ignored almost across the board among the economic bloggers.

January and February retail sales are above the December low. The three month moving average is still below the December moving average, but if the March report is decent the very low December report drops out of the three month moving average so the first quarter number is likely to be above the fourth quarter number.

In January real personal consumption expenditures were 0.1% above the fourth quarter level
and this report implies that the January real PCE data will be revised up. This and the good February report implies that in the first quarter real GDP, real PCE could be higher than in the fourth quarter. Since the plunge in real PCE contributed some 3.0 percentage points of the 6.2% drop in fourth quarter real GDP this is a very good report.

Of course some of this gain will be offset by falling inventories, but this is the first solid sign of an economic bottom to show up in the data.

Part of the gain was a very strong pop in gas station sales, but even when you back that out, the data is still showing signs of bottoming.

Even if you back out gas station and food store sales you still get roughly the same results.

This strength in retail sales probably stems largely from the impact of falling energy prices on
real incomes. This together with the normal January increase in government pay, social security inflation adjustments and other transfer payments means that despite falling nominal private wage and salary payments in recent months real income still rose.

But it also means that the recent rebound in oil prices is especially dangerous. If energy prices continue to climb it means that the recent pop in real incomes could reverse and this would make it extremely difficult to sustain this improvement in retail sales.

P.S. Technical note. February sales fell -0.1%, but given the normal margin of error this means
they could have been (+/- 0.5%). Since the first data is only a one-third sample often the most important information in the report is how last months data was revised. January sales were revised to show a 1.8% gain as compared to a 1.0% gain originally reported.