U.S. retail sales fell for a third month in a row in February, despite the allegedly improving labor market and cheap gasoline prices. The economists blame mainly cold weather; however it may just be another sign of the economic slowdown, which would be positive for gold prices.

The Department of Commerce reported on Thursday that sales at retailers and restaurants declined 0.6 percent in February from January 2015. It surprised the analysts, who expected a 0.3 percent growth, according to the Bloomberg Econoday Consensus. The most commonly cited reasons are cautious consumers and harsh weather. Undoubtedly, the rough winter could contribute to weak spending; however we believe that it cannot tell the whole story.

Why? Retailers blame weather whether it is cold or hot. Whenever weak sales cannot be explained and they coincide with bad weather (extremely hot or cold) that becomes the reason why consumers did not leave more money at the shops.

Just look at the data (see the chart below): U.S. retail sales have been declining for three consecutive months, not only in February. Moreover, bad weather did not prevent consumers to increase their spending in February 2014, in spite of experiencing a harsh winter. And cold temperatures are not an obstacle for high spending during the Christmas season. Some experts even believe that cold weather can drive people to the store. Indeed, in November 2014 sales rose, despite temperatures dropping.

Figure 1: U.S. retail sales excluding food services between February 2005 and February 1, 2015 (percent change from year ago).

We do not deny that the harsh winter could be one of the reasons of weak spending. We just do not buy that cold weather could cause such a big drop in retail sales compared to expectations (a 0.6 percent drop versus 0.3 percent growth) if the demand were generally strong. Especially in such a big country as the United States, where there are different weather patterns.

It is a bit surprising than almost no one cited the slowing American and global economy as the reason for the decline in U.S. retail sales. When you analyze the long series of data, you will find that current consumer spending is creating a pattern very similar to past recessions. Actually, excluding food and automobiles, February 2015 was the worst month since the Great Recession. Do not underestimate the significance of weak retail sales – the negative numbers are very rare even for recessions, and we are witnessing a three-month accumulation of weak sales.

The bottom line is that although bad weather can explain part of the story behind weak U.S. retail sales, the most important factor is a slowing economy. It is good news for gold investors, as the yellow metal usually performs quite well during global slowdowns.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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