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U.S. retail sales falter; inflation creeping higher

Reuters  |  WASHINGTON 

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. 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 prices rose solidly in February, driven by strong gains in the cost of services such as hotel accommodation, and hospital inpatient care.

The sustained decline in 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.

"Looking at consumer fundamentals there appears to be nothing sinister going on among America's households," said Ellen Zentner, chief at in "We posit that the anticipation of the widely publicized tax cuts pulled forward spending into the fourth quarter of 2017."

The Commerce Department said slipped 0.1 percent last month. January data was revised to show sales dipping 0.1 percent instead of falling 0.3 percent as previously reported. It was the first time since April 2012 that retail sales have declined for three straight months.

Economists polled by had forecast retail sales rising 0.3 percent in February. Retail sales in February increased 4.0 percent from a year ago.

Excluding automobiles, gasoline, building materials and services, retail sales edged up 0.1 percent last month after being unchanged in January. These correspond most closely with the consumer spending component of

As a result of the at the start of the year, economists lowered their first-quarter GDP growth estimates. The slashed its forecast to a 1.9 percent annualised rate from a 2.5 percent pace.

Data forecasting firm cut its estimate by four-tenths of a percentage point to a 1.7 percent rate, also taking into account revisions to January

The economy grew at a 2.5 percent 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 percent pace. The government will publish its third estimate for fourth-quarter GDP growth later this month.

In a separate report, the Labor Department said a key measure of underlying price pressures that excludes food, and rose 0.4 percent last month, matching January's gain.

That boosted the year-on-year increase in the so-called core PPI to 2.7 percent, the biggest gain since August 2014, from 2.5 percent in January. The increase in underlying wholesale prices supports views that consumer inflation will pick up this year.


"We firmly believe that core consumer price inflation is rising and the March CPI report will be the acid test of that hypothesis," said John Ryding, chief at in

U.S. financial markets largely shrugged off the and investors focused instead on the wholesale inflation data. The dollar initially firmed against a basket of currencies before giving up gains to trade little changed.

Prices for U.S. Treasuries rose. Stocks on Wall Street fell, with the Dow Jones Industrial Average shedding more than 250 points as domestic manufacturers continued to suffer from worries over the impact on trade from tariffs announced last week.

The Fed has forecast three interest rate increases this year. Many economists expect will raise its projection to four rate increases because of a robust labour market and firming inflation.

Economists believe that a tightening labour market, weak dollar and fiscal stimulus in the form of the tax cuts and increased government spending will lift inflation toward the Fed's 2 percent target this year.

The Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding and energy, has undershot its target since May 2012.

The massive tax cut package is part of a Tax Cuts and Jobs Act (TCJA), which came into effect in January. Fed officials view the labour market as being near or a little beyond full employment.

The economy added 313,000 jobs in February, giving analysts confidence that retail sales could rebound as soon as April.

"Also keep in mind that most folks' tax withholding schedules were probably not reduced lower to reflect the TCJA rates until later in February, so that support to consumption may not be apparent until the springtime," said Michael Feroli, an at in

Auto sales fell 0.9 percent in February after a similar drop in January. There were also declines in sales at gasoline stations, furniture, health and personal care and and appliance stores.

But there were some pockets of strength. Sales at building material stores surged 1.9 percent last month. Receipts at clothing stores gained 0.4 percent and sales at jumped 1.0 percent. Consumers also spent more at restaurants and bars and splurged on sporting goods and hobbies.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, March 14 2018. 23:32 IST