Retail Sales: A February Freeze

An unexpected decline on the month indicates that consumers are digging in their heels, adding to recession fears

Amid rising prices for gasoline and other essentials, a weakening labor market, and continued turmoil in financial markets, a report on retail sales in February released Mar. 13 indicates that U.S. consumers are keeping a tighter grip on their wallets.

Other reports released Mar. 13 showed a larger than expected rise in business inventories for January; a smaller rise in import prices in February than economists had forecast, but a bigger jump in export prices; and little change in the number of first-time unemployment filings in the week ended Mar. 8.

Here's a roundup of the Mar. 13 reports:

Retail Sales

U.S. retail sales fell 0.6% in February, and were down 0.2% excluding autos. The figures were lower than market expectations of 0.2% gains for both measures, reports S&P Economics, and S&P's own forecasts of 0.0% and 0.3%, respectively.

The monthly data are weaker than expected and will add to fears of a U.S. recession, according to S&P Economics.

On a year-over-year basis, the pace of retail sales accelerated to 6.8% from 4.6% in January, while the ex-auto pace is now at 8.8% year-over-year, vs. 5.7% the month before. Sales excluding autos, gas, and building materials were flat after a 0.3% gain in January.

Declines were broad-based. Auto sales plunged 1.9%, while food and beverage sales dipped 0.2%. Gas station sales fell 1.0% but are up 25.7% from a year ago. Clothing sales rose 0.2%.

The retail sales report revealed sizable shortfalls in February spending that prompted Action Economics to pare its first-quarter gross domestic product forecast to -0.3%.

The weak retail sales figure helped to contribute to a slide in U.S. stock market indexes on Mar. 13, along with investor worries about the health of the credit market. Treasuries rallied, while the U.S. dollar declined in value vs. other major currencies.

Trade Prices

U.S. import prices edged up 0.2% in February, more tame than the 0.7% that markets had expected but following a 1.6% pace in January. Export prices rose 0.9%, stronger than the expected 0.6% rate and after the 1.2% jump in January.

Import prices are up 13.6% over last year, while export prices are running at a 6.8% year-over-year pace. Petroleum import prices fell 1.5% on the month but are still up 60.9% over last year. Food export prices climbed another 4.5% and are up 31.4% from a year ago.

Though Federal Reserve policymakers remain more focused on the downside risks to the economy, rising prices pressures will remain a concern, says S&P Economics.

Taking the February trade-price data into account, Action Economics continues to assume 0.2% gains for both the total and core (excluding food and energy prices) consumer price index and the personal consumption expenditure chain price indexes in February, as well as a 0.2% core gain for the producer price index. The headline PPI looks poised for a 0.5% gain, says Action, thanks to ongoing strength in wholesale fuel prices.

Excessive price gains will continue to hobble the Fed, despite the disproportionate focus on downside economic risks, says Action.

Business Inventories

U.S. business inventories rose 0.8% in January, while sales jumped 1.5%. The 0.6% December rise in inventories was revised higher, to 0.7%; the 0.5% decline in December sales was revised down to -0.6%. Retail inventories rose 0.4%, and were up 0.4% excluding autos.

The stronger than expected January gain will help to cap downside risk to first quarter GDP growth, says Action Economics.

Initial Jobless Claims

U.S. jobless claims held at 353,000 the week ended Mar. 8, following a revised 353,000 in the prior week (351,000 previously). Continuing claims rose 7,000 to 2,835,000 in the week ended Mar. 1, keeping the insured unemployment rate at 2.1%. The data were in line with expectations, according to S&P Economics.

The U.S. initial jobless claims figures continue to oscillate around 350,000-355,000—levels that remain surprisingly lean relative to the rapidly deteriorating trajectory in monthly payroll reports, says Action Economics. Action projects that nonfarm payrolls will be flat in March, following declines of 63,000 in February and 22,000 in January.

by BusinessWeek, Standard & Poor's, and Action Economics staff