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U.S. retail sales falter; underlying producer prices rise solidly

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, pointing to a slowdown in economic growth in the first quarter.

Despite signs of cooling in consumer spending, inflation pressures are steadily building, which should allow the Federal Reserve to raise interest rates next week.

Underlying prices increasing solidly in February, driven by strong gains in the cost of services such as hotel accommodation, and hospital inpatient care, other data showed on Wednesday.

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 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

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, appears to have slowed at the start of the year after accelerating at a 3.8 percent annualised rate in the fourth quarter.

"These are weak on the face of it and point to sluggish growth in consumer spending in the first quarter," said John Ryding, at in

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.

U.S. financial markets largely shrugged off the and investors focused instead on the wholesale inflation data. The dollar was trading higher against a basket of currencies. Prices for U.S. Treasuries were mixed, with the yield on the interest-rate-sensitive two-year note rising.

Stocks on Wall Street were marginally higher.

SLOWING CONSUMER SPENDING

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

Economists believe that a tightening labour market, weak dollar and fiscal stimulus from a $1.5 trillion income tax cut package 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.

Slower consumer spending supports expectations of moderate economic growth in the first quarter. GDP growth estimates for the January-March quarter are around a 2 percent annualised rate.

The economy grew at a 2.5 percent pace in the fourth quarter. But revisions to December data on construction spending, factory orders and wholesale inventories have suggested the fourth-quarter growth estimate could be raised to a 3.0 percent pace. The government will publish its third estimate for fourth-quarter GDP growth later this month.

Consumer spending, however, remains underpinned by the jobs market, which is viewed by Fed officials as being near or a little beyond full employment. The economy created 313,000 jobs in February. Consumer spending could also get a lift from the tax cuts.

Auto sales fell 0.9 percent in February after a similar drop in January. Receipts at service stations declined 1.2 percent, reflecting lower gasoline prices.

There were also declines in sales at furniture stores, health and personal care stores and and appliance stores. But there were some pockets of strength. Sales at building material stores increased 1.9 percent last month.

Receipts at clothing stores gained 0.4 percent and sales at surged 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. 20:06 IST
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