WASHINGTON D.C.: According to a report from the US Commerce Department, in February, US retail sales fell moderately, likely the outcome of the sharper rise in January, but the continued momentum indicates that despite higher borrowing costs, the economy still expanded in the first quarter of 2023.
Following data released last week showing solid job growth in February, the report made analysts upgrade this quarter’s gross domestic product growth estimates.
In terms of inflation, February experienced the smallest year-on-year increase in nearly two years, due to falling producer prices.
However, after the recent collapse of two US banks, the outlook for the the Federal Reserve’s interest rate decision, due soon, has become more uncertain.
“American consumers still appear to be spending at a rate that will make the Fed uncomfortable with the inflation outlook, warranting a further tap on the brakes,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, as quoted by Reuters.
In February, retail sales fell 0.4 percent, compared with a forecast by economists polled by Reuters of an average 0.3 percent fall, with estimates ranging from a 1.0 percent decline to a 0.5 percent increase.
Retail sales are mostly goods and are not adjusted for inflation.
A tight labor market, which is generating higher wage growth, is also propping up spending. In January, there were 1.9 job openings for every unemployed person, and consumers have accumulated high levels of savings during the COVID-19 pandemic.
Since last March, the Federal Reserve Bank has raised its benchmark overnight interest rate by 450 basis points from near-zero to the current 4.50 percent to 4.75 percent.
“Recent bank failures and the spike in financial market stress are complicating policymakers’ task of reading the economic tea leaves,” noted Oren Klachkin, at Oxford Economics in New York, as reported by Reuters.
An analysis of the Bank of America Securities card data in February also showed that services spending was significantly higher than goods spending, suggesting the rotation of spending back to services helped to undercut retail sales in February.