Retail sales disappoint, but do not cast a pall

The views expressed represent the Manager's assessment of the market environment as of March 13, 2015, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's current views.

Defying consensus expectations, U.S. retail sales fell in February, marking the third consecutive month of declines. It was the first time since 2012 that sales posted negative numbers three months in a row.

While February retail sales fell 0.6% versus anticipated growth of 0.3%, the outlook is not all bleak. Household net worth, for instance, posted its biggest rise in a year, gaining $1.52 trillion to reach $82.91 trillion in the fourth quarter; we believe this bodes well for consumers’ ability to spend going forward. (Source: U.S. Commerce Department.)

It is also likely February’s readings were dampened by extreme snowfall and winter conditions. Sales should strengthen as spring approaches, perhaps supplemented by the fact that Easter falls earlier than usual this year. We also expect the Federal Reserve to delay interest rate hikes a while longer, which is in itself a positive for retail sales.

Additionally, signs of economic recovery continue to present themselves, not the least of which is a reasonably steady pace in job growth. Even though soft retail activity is not a welcome sight — especially when it falls across nearly all categories, as was the case in February — there is little evidence to suggest that consumers are leaving the scene in full force.

We think the sales data are not a cause for agitation. In our opinion, it makes better sense to be patient and wait for answers to questions that include: What will sales numbers look like in coming months? Or more to the point: Will gasoline prices and harsh weather skew the results — as was the case in February — or will sales trends return to reflecting basics and fundamentals?

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