(April 1): U.S. retail sales unexpectedly eased in February on declines in grocery stores and building materials, which could potentially reflect cooler weather, though also may signal further headwinds for the economy in the first quarter.
The value of overall sales fell 0.2% after an upwardly revised 0.7% increase the prior month, according to Commerce Department figures released Monday. The median forecast of economists surveyed by Bloomberg called for a 0.2% gain.
Sales in the “control group” subset, which some analysts view as a cleaner gauge of underlying consumer demand, also fell 0.2%, missing estimates for a gain, after an upwardly revised 1.7% increase in the prior month. The measure excludes food services, car dealers, building-materials stores and gasoline stations.
The report suggests consumer spending will be limited as a growth driver in the first quarter, with pressure points also including smaller-than-expected tax refunds and global economic weakness that may be weighing on jobs. Even so, rising wages, a stock-market rally and steady interest rates are likely to be pillars for consumption in coming months
“The question that everybody’s got with a lot of this data is: Are we going through a soft patch or is this the start of a more serious retrenchment in consumer spending? And we keep getting mixed signals in that regard,” said Tim Quinlan, a senior economist at Wells Fargo & Co in Charlotte, North Carolina.
Seven of 13 major retail categories showed declines, led by a 4.4% drop in building materials and garden supply stores that was the steepest since April 2012. Food and beverage stores posted a 1.2% drop, the most in a decade.
Economists including Capital Economics’ Andrew Hunter said weather likely played an outsize role in February sales. There was record rainfall in parts of the Southeast, major winter storms in the North, including record snowfall and cold temperatures in the Northwest.
What Bloomberg’s Economists Say
“Weaker-than-expected retail sales in February signal that consumer-spending growth will significantly slow in the first three months of the year, compared with prior quarters. This is likely a result of the lingering impact of the government shutdown, the year-end market selloff and an earlier slump in consumer confidence.” — Yelena Shulyatyeva and Carl Riccadonna, economists
The data likely won’t change the expectations of Federal Reserve policy makers for no interest-rate hikes this year amid muted inflation. Officials have generally seen the economy as in good shape, and Fed Vice Chairman for Supervision Randal Quarles said Friday that the “sharp falloff” in retail sales in December was inconsistent with other indicators. Some economists and analysts have echoed that sentiment.
White House chief economic adviser Larry Kudlow said Friday that the “underlying economy” isn’t slowing. Still, he called for the Fed to cut interest rates by a half percentage point.
“They were talking about ‘patience’ before as in, no need to rush into another rate hike,” Wells Fargo’s Quinlan said of the Fed. “Now they might have to start using the word ‘patience’ to say there’s no need to rush toward a rate cut.”
Other recent indicators have offered a mixed picture of the U.S. economy. Data on February durable-goods orders, due Tuesday, and Friday’s employment report for March will give a better sense of whether the weakness will be temporary.
Filling-station receipts increased 1% in February, the most since October, the report showed. The figures aren’t adjusted for price changes, so rising retail sales in the category could reflect higher fuel costs, sales, or both. Oil prices have steadily increased this year, and gasoline prices have followed.
Sales at automobile dealers climbed 0.7%, after an upwardly revised 1.9% drop in the previous month. Industry data from Wards Automotive Group previously showed unit sales fell to the lowest level since 2017.
Excluding automobiles and gasoline, retail sales slumped 0.4%, after a 1.4% advance the previous month.
Estimates in the Bloomberg survey for retail sales ranged from a 0.4% drop to a 0.7% gain. Retail sales data for the prior month was revised up from a 0.2% increase. Receipts at electronics and appliance stores fell 1.3%, the most since May 2017. The retail-sales data capture just under half of all household purchases and tend to be volatile. The February figures were delayed more than two weeks by the government shutdown.