Retail sales increase in February before Iran conflict impacts spending

Retail sales in the United States increased 0.6% in February, beating expectations, the Commerce Department reported Wednesday. The gain followed a revised 0.1% decline in January.

Experts say the February rise was strong, despite inflation concerns. However, the conflict with Iran and rising gasoline prices are starting to influence consumer sentiment, analysts noted. Since the start of March, gas prices have surged, with the national average topping $4 per gallon for the first time since 2022, according to AAA.

Before the Iran conflict escalated, sales at motor vehicle and auto parts stores increased 1.2% in February. Excluding that sector, retail sales rose 0.4%. Business at clothing and accessories stores increased 2%, while electronics and appliance store sales rose 0.5%. Online retail sales grew 0.7%, and health and personal care store sales increased 2.3%. The data does not include travel or hotel spending, but restaurant sales increased 0.4%.

Economists warn that higher gas prices could dampen overall spending. Ksenia Bushmeneva of TD Bank Group said that while March might see higher sales due to increased fuel prices, consumers may cut back on discretionary spending, especially on travel and recreation. The Iran war began Feb. 28, disrupting the Strait of Hormuz and pushing Brent crude oil prices up more than 45% since then.

Rising transportation costs are expected to contribute to inflation, with some economists predicting the impact could be felt as soon as this month. The spike in gas prices is also expected to hit lower-income households hardest, as noted by Samuel Tombs of Pantheon Economics. Meanwhile, gas prices are nearing 3% of median household income, according to GasBuddy analyst Patrick De Haan.

Retailers are already expressing concern. Daniel Erver, CEO of Hennes & Mauritz, said energy prices could significantly influence consumer behavior if the conflict persists. Darren Rebelez, CEO of Casey’s General Stores, indicated that a consumer spending slowdown is unlikely unless gas prices reach $5 per gallon.

Source: Original Article