US February retail sales falter; inflation creeping higher

WASHINGTON: US retail sales fell for a third straight month in February as households cut back on purchases of motor vehicles and other big-ticket items, prompting analysts to downgrade their first-quarter economic growth forecasts. Despite signs of cooling in consumer spending, inflation pressures are steadily building, which should allow the Federal Reserve to raise interest rates next week. Other data on Wednesday showed underlying producer prices rose solidly in February, driven by strong gains in the cost of services such as hotel accommodation, airline fares and hospital inpatient care.
The sustained decline in retail sales is surprising as consumer confidence is at a more than 17-year high in the wake of a $15 trillion income tax cut package and a labour market that continues to churn out jobs. Economists said consumers boosted spending in the fourth quarter in anticipation of the lower taxes.
The Commerce Department said retail sales slipped 0.1 per cent last month. January data was revised to show sales dipping 0.1 per cent instead of falling 0.3 per cent as previously reported. It was the first time since April 2012 that retail sales have declined for three straight months.
Economists polled by Reuters had forecast retail sales rising 0.3 per cent in February. Retail sales in February increased 4.0 per cent from a year ago.
Excluding automobiles, gasoline, building materials and food services, retail sales edged up 0.1 per cent last month after being unchanged in January. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. As a result of the weak core retail sales at the start of the year, economists lowered their first-quarter GDP growth estimates. The Atlanta Fed slashed its forecast to a 1.9 per cent annualised rate from a 2.5 per cent pace.
Data forecasting firm Macroeconomic Advisers cut its estimate by four-tenths of a percentage point to a 1.7 per cent rate, also taking into account revisions to January retail inventory data.
The economy grew at a 2.5 per cent pace in the fourth quarter, the government reported last month. But revisions to December data on construction spending, factory orders and inventories have suggested the fourth-quarter growth estimate could be raised to a 3.1 per cent pace. The government will publish its third estimate for fourth-quarter GDP growth later this month.
In a separate report, the Labour Department said a key measure of underlying producer price pressures that excludes food, energy and trade services rose 0.4 per cent last month, matching January’s gain.
That boosted the year-on-year increase in the so-called core PPI to 2.7 per cent, the biggest gain since August 2014, from 2.5 per cent in January.
— Reuters