February 2023 Results & Trends

U.S. retail sales in February were down 0.4% from the prior month but increased 5.4% from a year earlier, the Commerce Department reported. (Getty Images)

Retail Sales Decline

February’s U.S. retail sales declined 0.4% from the prior month but showed a 5.4% improvement from year-earlier levels as consumers got some relief from high gas prices, according to preliminary figures released Wednesday by the Commerce Department.

Reported as advance estimates subject to revision, government numbers showed consumers spent $697.9 billion in February at retail and food service establishments.

Naveen Jaggi, president of retail advisory services at brokerage JLL, said year-over-year figures showed consumers focusing increasingly on experiences as prices remained elevated on food and other necessary goods, with notable increases over February 2022 for restaurants, airlines and hotels.

Year-over-year spending was up 15.3% at food and drinking places, up 10.5% at general merchandise stores and increased 8% at health and personal care stores. “As spring break approaches in March and April, we expect retail sales to increase as consumers begin to travel more, shop for summer clothes, dine at restaurants and focus on experiences,” Jaggi said in a statement.

Jaggi said JLL analysts were not surprised to see February sales drop from January, given a decline in post-holiday foot traffic and annual inflation remaining historically high at 6%.

Commerce Department data showed the steepest month-over-month sales declines in categories including department stores, down 4% from January; furniture and home furnishing stores, declining 2.5%; and auto dealers, down 2%. Gas stations saw spending drop 0.6% for the month and decline 1.9% for the year as fuel prices have moderated over the past several weeks.

Builder Confidence Improves

Builders of single-family homes expressed cautious optimism about market prospects in the latest monthly survey by the National Association of Home Builders and Wells Fargo, though there is still concern within the industry about high interest rates and housing affordability.

Results of the trade group’s March survey released Wednesday showed confidence rising two points from the prior month to 44. Numbers below 50 generally signal overall cautious or negative outlooks among builders, but confidence increased for the third consecutive month.

“Even as builders continue to deal with stubbornly high construction costs and material supply chain disruptions, they continue to report strong pent-up demand as buyers are waiting for interest rates to drop and turning more to the new home market due to a shortage of existing inventory,” NAHB Chair Alicia Huey said in a statement.

“But given recent instability concerns in the banking system and volatility in interest rates, builders are highly uncertain about the near- and medium-term outlook,” said Huey, a custom homebuilder and developer based in Birmingham, Alabama.

Robert Dietz, the trade group’s chief economist, said home prices and availability remain critical constraints for prospective homebuyers. He said continued Federal Reserve rate increases could create further acquisition, development and construction cost challenges for builders, exacerbating affordability problems for buyers.

Mortgage Applications Edge Higher

Declining mortgage rates helped spur a 6.5% rise in mortgage application volume for the week that ended March 10 compared with the prior week, the Mortgage Bankers Association reported Wednesday. But the latest market fluctuations could still keep many prospective buyers, including apartment renters, on the sidelines when it comes to home purchases.

The trade group said the past week’s market concerns over bank closures, and potential ripple effects for the larger economy, pushed Treasury yields down and triggered a flight to safety in Treasury bonds. “This decline pushed mortgage rates for all types lower, with the 30-year fixed rate decreasing to 6.71%,” Joel Kan, the banker group’s deputy chief economist, said in a statement.

“Home purchase applications increased for the second straight week but remained almost 40% below last year’s pace,” Kan said. “While lower rates should buoy housing demand, the financial market volatility may cause buyers to pause their decisions.”

Refinance loan application volume for the week that ended March 10 rose 5% from the prior week but was still down 74% from year-earlier levels. Purchase applications increased 7% from the previous week but declined 38% from a year earlier, the trade group reported.

Retail Sales Decline, Builder Confidence Improves, Mortgage Applications Edge Higher