Following a disappointing drop in January, expectations were for a 0.3% rise in retail sales in Feb but BofA was far less sanguine, warning that sales could miss because tax benefits only went to people who had withholdings reduced, not those who actually got a refund as they were delayed.
And BofA was right, Retail Sales dropped 0.1% MoM (with Jan revised up to -0.1%), falling for the second straight month for the first time since October 2015.
Retail Sales disappointed across the board with Ex-Auto , Ex-Auto & Gas, and Control Group all missing expectations.
This retail sales print is the lowest analyst expectation…
Under the hood… Energy and Food costs fell most as Transportation jumped…
Both Department Stores and Gas Stations saw sales drop…
SouthBay Research has a “Vice Index” that that tracks spending on gambling, alcohol, drugs, and prostitution. And as of February, the vice index just tumbled, suggesting that after a brief burst in late 2017 and 2018, the consumer-driven economy is again in trouble.
Or, as SouthBay’s Andrew Zatlin writes, the “Vice Index Points to Tax Cut Hangover: Slower Pace of Consumer Spending for 1Q“
Here is the same Vice Index shown unlagged: it shows that the impact of the Trump tax Cut was “Short but Sweet”, and ominous warning for the broader economy.
It seems consumers pre-spent a lot of the Trump tax cut: In anticipation of the tax cut, Households went on a spending spree. You can see that in the pace and timing of the drop in savings: a little drop in September (when the tax cut seemed likely) and a bigger drop in November when the cut was agreed. Consumers were spending ahead of the expected savings.