NEW YORK — Shoppers increased their spending in February, particularly on cars and clothing, after pulling back at the start of the year due to severe winter storms.
Retail sales rose a better-than-expected 0.6% in February, from a revised 0.1% decline in January, the Commerce Department said Wednesday.
But there’s concern that the Iran war, which is sending gasoline prices soaring and whose impact wasn’t reflected in the retail sales data, could derail spending at a time when Americans have already been squeezed by years of elevated inflation.
Gas sped past an average of $4 a gallon on Tuesday for the first time since 2022 and jumped another 4 cents overnight.
The national average for a gallon of regular gasoline hit $4.06 Wednesday. That was a dollar more per gallon before the war.
Sales at motor vehicle and auto parts dealerships rose a solid 1.2% in February. Excluding that sector, retail sales rose 0.4%
Business at clothing and accessories stores rose 2%, while sales at electronics and appliance stores were up 0.5%. Sales at online retailers rose 0.7%. And business at health and personal care stores were up 2.3%
The snapshot offers only a partial look at consumer spending and doesn’t include things like travel and hotel stays. But the lone services category – restaurants – registered an increase of 0.4%.
“This was a solid report,” Ksenia Bushmeneva, economist at TD Bank Group, wrote in a report published on Wednesday.
He noted that higher gas prices at the pump will likely lift overall sales in March since the government retail sales figures are not adjusted for inflation. But he said “real spending might take a hit as consumers look to offset higher fuel costs with reduced spending discretionary items, with spending on travel and recreation the most likely areas to be cut.”
The Iran war began Feb. 28 and has shut down the Strait of Hormuz, cutting off one-fifth of the world’s oil supply. The price for a barrel of Brent crude, the international standard, is up more than 45% since the start of the war. The cost of diesel fuel has risen faster than gasoline, driving up the cost of transportation for companies. Economists expect a related bump in inflation, potentially as soon as this month.
Economists had believed that an unusually large jump in tax refunds would kick start spending at the start of the year. But spiking gas prices will take a bite of that money.
“The hit to real incomes from higher gas prices is especially regressive, hurting lower-income households disproportionately, while the lift from tax refunds is more evenly spread,” Samuel Tombs, chief economist at Pantheon Economics, wrote in a recent report. “Moreover, refunds will slow to a trickle by late April, providing little protection if high prices persist.”
Higher gas prices look set to reduce real household incomes by roughly $15 billion per month, he said.
Patrick De Haan, an analyst at GasBuddy, which tracks fuel prices, noted that the way to gauge the impact of gas prices is how much gas expenditures account for a shopper’s income. He said that gas prices are approaching 3% of household medium income.
“When that gets up to about 4, 4 1/2, 5%, that’s really when people really start trimming back on some of their discretionary purchases,” he said.
Some retailers are already warning of the consumer impact if gas prices go higher.
Daniel Erver, CEO of Hennes & Mauritz, said last week that the Swedish fast fashion chain expects energy prices will have a “significant impact on the consumer behavior” if the war is prolonged.
And Darren Rebelez, CEO of the convenience store chain Casey’s General Stores, told investors last month that a significant pullback in customer spending is unlikely unless gas approaches $5 per gallon.