Daily Brief: US Retail Sales Were Up… Oh No Wait, That’s Just Gas

Daily Brief: US Retail Sales Were Up… Oh No Wait, That’s Just Gas

almost 2 years ago3 mins

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Data out on Wednesday showed that US retail sales rose by less than expected last month. Just don’t remind Americans how much they spent at the pump…

What does this mean?

Retail sales in the US rose by a worse-than-expected 0.3% in February from the month before, a massive drop from January’s 4.9% uptick. And while sales in bars and restaurants were up, the real bumper growth came from a 5.3% increase in gas sales – partly down to folk paying higher prices at the pump. In fact, if you strip out those mighty gas sales, then total retail sales were actually down 0.2%. After all, sales in 6 of the 13 retail categories fell last month: online shopping was down sharply, and sales at grocery and electrical stores dropped too.

US retail sales

Why should I care?

For markets: Hikes are like buses...

Those slow sales figures might signal that Americans are tightening their purse strings as prices rise. That, then, might be why the Federal Reserve (the Fed) raised interest rates by 0.25% on Wednesday, which should help cool down 40-year high inflation. And while it’s the central bank’s first rate hike since 2018, there might not be long to wait until the next one: the Fed said it’s likely to hike rates another six times this year.

Federal funds rate

The bigger picture: The worst is yet to come.

Households will really feel the pinch from those rate hikes, especially since inflation is also set to rise following Russia’s invasion of Ukraine. And if consumer spending – which makes up over two-thirds of the US economy – dips, economic growth could take a hit too. That might be why a survey out this week shows that economists predict there’s now a 33% chance of a recession in the next twelve months – up 10% from last month.

Keep reading for our next story...

Zara’s Owner Inditex Reported Mixed Results

Inditex image

Inditex reported mixed results on Wednesday, but at least shoppers flocked to the world’s biggest clothing retailer no matter if they were working from home or hitting the town.

What does this mean?

Inditex managed to reopen most of its roughly 7,000 stores last year, as countries around the world let their eager shoppers roam free. But then Omicron cropped up, bringing about new restrictions that the Spanish retailer – owner of Zara, Bershka, and Massimo Dutti – reckons cost it around $440 million in profit last quarter alone.

Luckily, Inditex had a year of solid sales to fall back on: locked-down shoppers spent so much that online sales made up over a quarter of the brand’s total sales in 2021. And overall, the retailer boosted sales by 36% last year from the one before, bringing them back to pre-pandemic levels and almost tripling its profit too.

Why should I care?

For markets: More issues than Vogue.

Analysts seem fussier than even the most glamorous of fashionistas: Inditex’s bumper yearly growth still came in below their expectations. They won’t like what’s coming up, either: Inditex closed its Russian stores earlier this month after the country invaded Ukraine, which doesn’t bode well for business. After all, it has more stores there than in any country besides Spain, and Russian sales make up nearly 10% of the retailer’s operating profit. Throw in that rising Covid cases are threatening its business in China too, and investors sent Inditex’s shares down after the news – leaving them down more than 25% over the past year.

Inditex stock
Inditex stock | Source: Google Finance

Zooming out: Now that’s a trend.

Inditex’s biggest rival also gave a results update this week: H&M reported its sales were up 23% last quarter from the same time the year before. But just like Inditex, the world’s second-biggest fashion retailer might have trouble up ahead: analysts cut their 2022 profit estimates by 10%, blaming the current and potential impact of war in Europe on its sales.

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