The Frigid Weather Has Dealt Consumer Spending a Blow

NEW YORK (MainStreet) — The harsh and severe weather continued to dampen consumers' enthusiasm for spending in February, according to First Data's report.

As the frigid temperatures lingered and continued into February, the volume of spending was at 2.4%, a slight decline compared to 2.5% in January, reported First Data, an Atlanta-based payment technology and services company, which tracked sales by credit, debit and prepaid cards and checks from almost four million merchant locations.

An uptick in spending increased toward the end of February as temperatures rose and consumers started receiving their tax refunds, especially since refund volumes and values were slightly up compared to 2013.

While consumers were making purchases, they were driving less as gas station volume fell by 6.6%. Spending remained healthy at hotel, travel, food services and drinking places at 5.4%, 3.3% and 4.7% compared to January's growth of 5.4%, 2.3% and 3.3% and buoyed the overall growth.

"Consumer spending growth was again unfavorably impacted by severe weather across the nation, which hindered shopping activity for most of the month," said Krish Mantripragada, senior vice president of information and analytics solutions for First Data. "Credit card spending growth continues to be strong as consumer confidence remains pinned near post-recession highs, which has fueled consumers' appetite for credit and should support more spending growth."

Sales in February have been flat and "fairly disappointing" even though e-commerce shopping is immune to the perils of the severe cold, said Mark Venezia, senior vice president of sales North America for Spreadshirt, a Boston-based e-commerce platform.

"It does seem that February's outlook and enthusiasm for shopping was tepid at best," he said. "In Boston, March continues to be cold and dreary, but sales are brisk. We are expecting an increase of 25% this month. Perhaps this can be attributed to the longer days and optimism that come with this time of year. It is difficult to predict consumer behavior since the last holiday season we had record sales even with the shortened season."

As the weather rebounded, sales followed suit, according to data compiled by Applied Predictive Technologies (APT), a Washington, D.C.-based cloud-based predictive analytics software company. The data demonstrated an uptick in the second half of the month tied specifically to warmer weather. Retail sales for February fell by 1.1%, an improvement from January's sales which declined by 1.6%.

In the first half of February through the 14, the average temperature was 35°F and sales declined by 3.4%. However, in the second half of the month, the average temperature climbed to 43°F and sales figures grew by 1.4%, said APT, which pulled information from a subset of APT's $2 trillion in sales data or $1 of every $5 of U.S. retail sales from sales registers at over 50,000 locations across the U.S.

Riverside, Calif., Los Angeles and Denver reported the highest sales from the top 25 metro areas while the worst sales figures were in New York, Washington, D.C. and Philadelphia.

"The APT Index allows us to understand how the retail economy is performing," said Anthony Bruce, CEO of APT. "We saw some improvement in sales comps between January and February. As temperatures began to increase in the second half of February, sales comps also went up, indicating a 'polar thaw.'"

Sales figures dropped as the number of days where it snowed increased. Sales rose by 1.5% in areas that had no snow while areas that experienced one to four snow days saw sales decline by 1.0%. Areas which had five to nine show days reported sales dropped by 2.2% while areas which had over 10 snow days said sales declined the greatest by 2.8%.

Consumers are savvy about where they spend their money and what they spend it on, said Deeon Brown, brand and communications manager at DailySteals.com, a Brooklyn, NY-based shopping website.

"In the daily deal industry, we have seen a rise in keyword searches pertaining to our industry," he said. "This means that consumers are looking to buy the items that they need at fractions of the prices they would pay retail."

Sales are likely to increase once more consumers are able to find jobs and feel more confident about spending, said Joe Weinlick, vice president of marketing from Beyond.com, an employment website based in King of Prussia, Penn.

"Not only did the weather mean that certain industries did not hire, it also meant that many companies that planned to hire were slow to do so," he said. "This has a ripple effect. Active job seekers continue to spend cautiously. The good news is that we believe companies are ready to start hiring again, which means that job seeker confidence will rise and this will ultimately result in more consumers spending."

Pent-up demand could jolt consumer spending later in the year, said Alan MacEachin, corporate economist at Navy Federal Credit Union in Vienna, Va.

"If the economy improves later this year as most expect, any pent-up demand resulting from consumers staying home this winter could result in a strong snap-back in spending," he said. "I can particularly see this occurring with auto sales. Low interest rates, pent-up demand and dealers holding excess inventory could mean great deals for those looking to buy a car this spring."

--Written by Ellen Chang for MainStreet

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