US Economy Cooling in First Quarter; Inflation Appears Sticky

  • U.S. retail sales rebounded less than expected in February, suggesting a slowdown in consumer spending in the first quarter amid rising inflation and high borrowing costs.
  • This, however, is unlikely to spur the Federal Reserve to start cutting interest rates before June, as other data on Thursday showed a larger-than-expected increase in producer prices last month.
  • The labour market also remains fairly tight. Fewer Americans applied for unemployment benefits last week and annual revisions to the weekly claims data showed laid-off workers were quickly finding new work and not spending as long a period on jobless benefits as had been previously thought.
  • According to the Commerce Department’s Census Bureau, Retail sales rose 0.6% last month, and data for January was revised lower to show sales tumbling 1.1% instead of the previously reported 0.8%. Retail sales in December were also downgraded.
  • In February, retail sales exhibited mixed trends, with a slight decrease in online sales and declines in various sectors such as clothing, health, personal care, and furniture stores. However, there was a notable rebound of 0.4% in food services and drinking places, suggesting some recovery in consumer spending in certain areas.
  • Economists attribute these shifts to households prioritising essentials over discretionary spending, influenced by factors like high prices for food and gasoline. Despite some fluctuations, core retail sales remained stable, indicating consistent consumer spending patterns that align closely with GDP trends.
  • However, on a year-over-year basis, retail sales overshot economists’ projections for February with a 1.5% increase versus a 0.8% projection. Sales were boosted by a 1.6% rebound in receipts at motor vehicles and parts dealers. Sales at gasoline stations increased 0.9%, reflecting higher prices at the pump. Receipts at electronics and appliance outlets surged 1.5%. Conversely, building material and garden equipment store sales rebounded by 2.2%.

(Source: Reuters)