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The numbers: Sales at retailers fell 0.4% in February and declined for the third time in four months, pointing to a slowdown in consumer spending as higher interest rates take a bite out of the U.S. economic growth.
Retail sales are a big part of consumer spending and offer clues about the strength of the economy. Sales had been forecast to fall 0.4%, based on a Wall Street Journal poll of economists.
Receipts were flat if auto dealers and gas stations are excluded. Car and gasoline purchases exaggerate overall retail spending.
Retail sales had surged 3.2% in January largely on the strength of auto sales.
Key details: Sales of new vehicles and parts, an up-and-down category, slipped 1.8% in February. Just a month earlier, sales had leaped 7.1% to mark the biggest increase in 22 months.
Receipts at gas stations fell 0.6%, reflecting lower oil prices.
Setting aside car dealers and gas stations, U.S. retail sales were still fairly tepid. Receipts fell at department stores, home centers and outlets that sell home furnishings, clothing and sporting goods.
One category economists watch closely is bars and restaurants, the only service sector in the retail report. Restaurant receipts declined 2.2% last month following a 5.6% gain in January.
Economists say colder weather in some parts of the country may have dampened spending, but further declines would be a bad omen.
Restaurant sales tend to rise when the economy is healthy and Americans feel secure in their jobs. Sales slack off during times of economic distress.
Big picture: Retail sales have been up and down since last summer, but trend points to slower spending and less bang for the U.S. economy.
Part of the pullback reflects a shift in consumer habits. They are buying relatively fewer goods and spending more on services such as travel and recreation, a reversal of what happened in the early stages of the pandemic.
The end of pandemic stimulus payments from the government and now rising interest rates have also blunted consumer spending, especially on big-ticket items such as homes and cars.
Retail sales are likely to weaken further if the Federal Reserve continues to ratchet up interest rates.
The saving grace is the strongest labor market in decades and an extremely low unemployment. When most people jobs, they spend.
Looking ahead: “Labor market conditions are going to be the key driver of consumer spending,” said chief economist Joshua Shapiro of MFR Inc. “In the near term that looks to be reasonably solid, although momentum is slowing, and the full effects of Fed tightening are far from having been fully felt.”
Market reaction: Before the PPI report, the Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
were set to open lower in Wednesday trades due to worries about the soundness of U.S. and foreign banks.
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