Despite all their grousing about the high (and constantly increasing) price of gasoline, U.S. consumers kept driving to the malls in February. According to the Commerce Department, retail sales rose 1.1% during the month of February, and the largest gain seen in five months. Automobile sales also boomed and shoppers turned to websites like AutoTrader.com (which reported record traffic) in search of value and discounts.
EXHIBIT 1. MONTHLY PERCENTAGE CHANGE IN US RETAIL SALES & FOOD SERVICES
Source: DataStream.
Still, those high gasoline prices loom in the background. The Energy Information Administration reported that the average price of a gallon of regular gasoline rose more than ten cents to $3.83 over the course of February (See Exhibit 2). In fact, drivers who need to fill their gas tanks are paying, on average, 50 cents more per gallon today than they would have done at the beginning of the year. Moreover, while the average long-term growth rate of the price has been 7.8% since 1993, the rate has been far higher in recent years: 21.9% in 2010 and 23.9% in 2011-2012. As a result, analysts and economists continue to fret about the possible impact of soaring fuel costs on the economic recovery.
EXHIBIT 2. WEEKLY AVERAGE PRICE OF REGULAR GASOLINE, PER GALLON
Source: DataStream.
Looking at the year-over-year changes in both gasoline prices and retail sales (excluding gasoline sales) since 1993, the correlation level doesn’t seem strong. (Indeed, it’s only 38.2%.) This suggests that personal income levels have a more significant impact on consumer income than does the price of gasoline, however important it may be to consumers psychologically. (Obviously, gas prices do have an impact on sales of gasoline itself.)
However, looking at the year-over-year changes in retail sales and the unemployment rate since 1993, we can see a strong inverse correlation (-85.3%). That suggests that as the ranks of the unemployed fall, the retail sales level (as measured by the Commerce Department) climb. Similarly, and not surprisingly, the strong correlation between personal income and retail sales suggests that consumers are more likely to find shopping appealing when they have more money available to spend. So a decrease in unemployment levels seems to indicate that consumers will have more cash available to spend on refueling their cars’ gas tanks as well as at the mall.
EXHIBIT 3. CORRELATION OF RETAIL SALES (EX-GAS SALES), GAS PRICES, PERSONAL INCOME, UNEMPLOYMENT (1993-PRESENT)
Source: DataStream. Note : Monthly Year-over-year growth rates used.
In February, the Thomson Reuters/University of Michigan Survey of Consumers reported that “consumers have shrugged off concerns about rising gas prices, the European crisis, and election year politics, preferring to focus on the favorable impact of job growth.” Looking at year-over-year changes in consumer confidence with other potential economic threats including gas prices, personal income and the unemployment rate since 1993, we can’t see a strong correlation (Exhibit 4). Again, it is clear that the unemployment rate has a bigger effect on consumer confidence; the larger the negative correlation (-20.7%, in this case) tells us that unemployment is a more significant factor when it comes to affecting consumer confidence than do gasoline prices, with a smaller negative correlation, of only -14.7%.
EXHIBIT 4. CORRELATION OF CONSUMER CONFIDENCE, GAS PRICES, PERSONAL INCOME, UNEMPLOYMENT (1993-PRESENT)
Source: DataStream. Note : Monthly Year-over-year growth rates used.
So while shoppers might complain about higher gasoline prices, it doesn’t seem likely that this will stop them from driving to the stores this month and spending money once they get there, just as they did in February. Same-store-sales look bullish in March, due to fact that this year’s Easter holiday comes two weeks earlier, on April 8. That means Easter shoppers will do their purchasing in late March rather than in early April, as was the case in 2011. Retailers have already told investors to expect that their March SSS will post strong comps, but then drop in April. Consequently, to get a grip on year-over-year comps, it’s essential to average the results of these two months if one wants a smoother and more accurate representation of the period before and after Easter.
Recent government retail data and the Same Store Sales signal that the American consumer appears likely to remain a more resilient character than some analysts have feared. Unless there is a sudden deterioration in the job market that would combine with higher gasoline prices to make consumers more fearful, they’re likely to keep shopping.
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