Inflation Has Kept Retail Sales Growth Alive

U.S. retail sales rose 0.2 percent in February, partially bouncing back from an untypically large slump in January, when sales had declined by 1.2 percent on a seasonally adjusted basis. According to advance estimates from the U.S. Census Bureau, total retail and food services sales - including spending at stores, online and in restaurants - amounted to $722.7 billion in February, up 3.1 percent from February 2024. Total sales for the past three months were up 3.8 percent from the same period a year ago, indicating that - despite the wobble in January - consumers keep spending money. This matters because consumer spending - of which retail sales represent a sizeable chunk - accounts for almost 70 percent of GDP and as long as consumers don't cut back on their purchases, a recession is highly unlikely.

There is one caveat though, which is the fact that GDP growth is measured in real terms, i.e. adjusted for price changes, while retail sales are not. Looking at the latest results, both retail sales and consumer prices grew increased by 0.2 percent in February, meaning that adjusted for inflation spending was flat. In terms of year-over-year growth, retail sales grew 3.1 percent in February, while consumer prices climbed 2.8 percent. That leaves 0.3 percent in "real" spending growth because retail sales just outpaced inflation.

The same cannot be said when looking back three years instead of one. Between February 2022 and 2025, monthly retail and food services sales (adjusted for seasonal variations, holiday and trading day differences) increased by 11.1 percent. Adjusted for CPI inflation, sales actually declined by 1.1 percent though. While that's not a big drop over three years - especially considering the financial pain that inflation has inflicted on many households - it is still something to consider when discussing consumer spending. All things considered, spending has been remarkably robust throughout the inflation crisis, as shoppers have kept buying roughly the same amount of stuff for significantly higher prices.