Shoppers walk through the Fashion Centre at Pentagon City, a shopping mall in Arlington, Va., on Feb. 2.SAUL LOEB/Getty Images
U.S. retail sales rebounded less than expected in February and consumer spending appeared to be slowing in the first quarter amid rising inflation and high borrowing costs.
The signs of slowing economic activity are, however, unlikely to spur the Federal Reserve to start cutting interest rates before June as other data on Thursday showed a larger-than-expected increase in producer prices last month.
The labour market also remains fairly tight. Fewer Americans applied for unemployment benefits last week and annual revisions to the weekly claims data showed laid-off workers were quickly finding new work and not spending as long a period of time on jobless benefits as had been previously thought.
“When the Fed is contemplating a series of rate cuts and is confronted by suddenly slower economic growth and suddenly brisker inflation, they will respond to the new news on the inflation side every time,” said Chris Low, chief economist at FHN Financial. “After all, this is not the first time in the past couple of years consumers have paused spending for a couple of months to catch their breath.”
Retail sales rose 0.6 per cent last month, the Commerce Department’s Census Bureau said. Data for January was revised lower to show sales tumbling 1.1 per cent instead the previously reported 0.8 per cent.
Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, would rise 0.8 per cent in February.
They increased 1.5 per cent on a year-on-year basis in February. Consumer spending is holding up despite higher inflation, though households are increasingly focusing on essentials and cutting back on discretionary spending.
Building material and garden equipment store sales rebounded 2.2 per cent. Receipts at motor vehicles and parts dealers accelerated 1.6 per cent. Sales at gasoline stations increased 0.9 per cent, reflecting higher prices at the pump.
Receipts at electronics and appliance outlets surged 1.5 per cent.
But online sales dipped 0.1 per cent. There were also decreases in sales at clothing, health and personal care stores. Furniture store sales decreased 1.1 per cent. sporting goods, hobby, musical instrument and sales at book stores were unchanged.
Sales at food services and drinking places, the only services component in the report, rebounded 0.4 per cent after dropping 1.0 per cent in January. Economists view dining out as a key indicator of household finances.
Retail sales excluding automobiles, gasoline, building materials and food services were unchanged in February.
This so-called core retail sales measure corresponds most closely with the consumer spending component of gross domestic product. Core sales for January were revised to show them decreasing 0.3 per cent instead of the previously reported 0.4 per cent.
Consumer spending is cooling in the first quarter after helping to fuel economic growth in the fourth quarter of 2023. Spending, however, remains supported by a fairly tight labour market. Economists see no imminent recession.
The Atlanta Fed is forecasting GDP to increase at a 2.5 per cent annualized rate in the first quarter. The economy grew at a 3.2 per cent pace in the fourth quarter.
U.S. stocks opened lower. The dollar rose against a basket of currencies. U.S. Treasury prices fell.
A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits fell 1,000 to a seasonally adjusted 209,000 for the week ended March 9. Economists had forecast 218,000 claims for the latest week.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 17,000 to 1.811 million during the week ending March 2.
The government revised the data for both the initial and so-called continuing claims from 2019 through 2023. It also implemented new models to seasonally adjust both initial claims and continued claims this year and revised seasonal factors for both series from 2019 through 2023.
Continuing claims over the past three months were revised significantly lower.
“Frankly, this is more consistent with the strong gains in payroll jobs reported for February, January and December,” said Stuart Hoffman, senior economic adviser at PNC Financial. “The labour market is becoming better balanced between demand for and supply of workers, which will help moderate upward wage pressures.”
The Fed has raised its benchmark overnight interest rate by 525 basis points to the current 5.25 per cent-5.50 per cent range since March 2022. The U.S. central bank is expected to start cutting rates by June.
Another report from the Labor Department showed the producer price index for final demand rose 0.6 per cent in February after advancing by an unrevised 0.3 per cent in January. Economists had forecast the PPI would climb 0.3 per cent.
A 1.2 per cent jump in the prices of goods accounted for nearly two-thirds of the increase in the PPI. Goods prices were driven by energy products, which surged 4.4 per cent after declining 1.1 per cent in January. Goods prices had edged down 0.1 per cent in January.
In the 12 months through February, the PPI shot up 1.6 per cent after advancing 1.0 per cent in January. The report followed news on Tuesday that consumer prices increased strongly for a second straight month in February.
Wholesale gasoline prices rose 6.8 per cent last month. Food prices were up 1.0 per cent, amid increases in the cost of eggs and beef.
Excluding food and energy, goods prices rose 0.3 per cent, matching January’s gain. This suggests that goods deflation, the major driver of lower inflation, was drawing to an end and services would need to pick up the slack in easing price pressure.
Services gained 0.3 per cent in February after rising 0.5 per cent in the prior month. A 3.8 per cent increase in the cost of hotel and motel rooms accounted for a quarter of the increase in services prices.
There were also increases in the costs of outpatient care and airline tickets. Portfolio management fees gained 0.2 per cent after accelerating by 5.9 per cent in January.
Portfolio management fees, health care, hotel and motel accommodation, and airline fares are among the components that go into the calculation of the personal consumption expenditures (PCE) price indexes. The PCE price indexes are the inflation measures tracked by the Fed for it 2 per cent target.
With the CPI and PPI data in hand, economists estimated that the core PCE price index increased 0.3 per cent in February after gaining 0.4 per cent in January. Core inflation is forecast to rise 2.8 per cent in February, which would match January’s gain.