In February, consumer spending experienced a slower-than-anticipated pace, although underlying indicators revealed that sales still grew at a commendable rate despite ongoing concerns about an economic slowdown and rising inflation. According to the advanced reading released on Monday by the Commerce Department, retail sales increased by 0.2% for the month. This figure is an improvement over the previously revised decline of 1.2% from January, yet it fell short of the Dow Jones estimate which projected a 0.6% increase.
When excluding automobile sales, the increase was slightly higher at 0.3%, aligning with market expectations. It's important to note that these sales figures are adjusted for seasonal factors but do not account for inflation. Based on a prior report from the Labor Department, prices rose by 0.2% during the same month, suggesting that consumer spending was roughly in line with inflation rates.
The control group, which removes noncore sectors and directly impacts gross domestic product (GDP) calculations, showed a stronger-than-expected increase of 1%. Following the release of this data, stock markets, which had recently reached correction levels, saw a positive uptick. Additionally, longer-dated Treasury yields experienced a slight rise.
Robert Frick, a corporate economist at Navy Federal Credit Union, commented on the report, stating, "Not a great report, but one still in positive territory despite the pessimism consumers feel about the future." A key driver of consumer spending remains consumer income, which is currently on an upward trajectory and showed significant growth in January.
Online shopping significantly contributed to the overall sales figures for February, as nonstore retailers reported an impressive 2.4% increase. The health and personal care sector noted a 1.7% gain, while food and beverage outlets experienced a modest rise of 0.4%. However, not all sectors fared well; bars and restaurants saw a 1.5% decline in sales, and gas stations reported a 1% drop, reflecting the impact of decreasing prices at the pump.
Year-over-year, total sales rose by 3.1%, outpacing the 2.8% inflation rate as measured by the consumer price index. A concerning aspect of the report was a significant revision for January's sales, which was initially reported as a 0.9% decline.
This report arrives amid intensifying worries over economic growth, particularly as President Donald Trump continues an aggressive tariff battle with major U.S. trading partners. Economists express concerns that these tariffs could exacerbate inflation and hinder economic progress. Elizabeth Renter, a senior economist at NerdWallet, noted, "Consumers and businesses are expected to pull back on spending when they lack clear insights into the economy's future." Currently, both direct economic policies and broader federal policies that indirectly affect the economy are in a state of flux, complicating informed decision-making.
Some economic indicators, such as the Atlanta Federal Reserve's GDPNow tracker, suggest that growth could be negative in the first quarter. However, the robust reading for control retail sales might lead to an upward revision later in the day.
In other economic news, the New York Federal Reserve reported a surprising decline in factory activity for March. The Empire State Manufacturing Survey registered a reading of -20, indicating a significant drop from February's level of 5.7 and well below the estimated -1.8. New orders faced a sharp decline as well, with the index plummeting to -14.9, a decrease of 26.3 points, while shipments also saw notable reductions. Additionally, inflation indexes for prices paid and received continued to rise, signaling persistent inflationary pressures in the manufacturing sector.
