After a strong month in January of consumer spending, retail sales decreased in February, an indication that the economy is slowly cooling, but inflation is still high, which may cause the Fed to raise interest rates.
Retail sales decreased in February, indicating that consumers are pulling back while inflation is still high, but perhaps not enough to stop the Federal Reserve from continuing to raise interest rates.
Retail sales in February declined -0.4%, not adjusted for inflation, the U.S. Census Bureau said Wednesday. The report showed a small pullback in sales in February after a large increase in January. Most categories were down, with food service, furniture stores, appliance stores, clothing stores, and bookstores, all showing no gains.
The reduction in retail sales is a sign that the economy is slowly cooling off, even as inflation remains high. Separate data shows the labor market is still robust, with 311,000 jobs added last month. More recently, Silicon Valley Bank and Signature Bank collapsed, which could shake people’s confidence in the economy and bring back worries about a possible recession.
Sales are slowing but are still high, which shows the economy is still hot, and the Federal Reserve still has a long way to go in its goal of cooling off the economy. This latest data shows the Federal Reserve will likely not be conformable, pausing rate hikes until other data indicates otherwise.
“The Fed has said that they’re primarily focused on getting inflation under control, and they want interest rates to be sufficiently restrictive to bring inflation down, that means a cooler economy,” said Robert A Dye, an economist from Comerica Bank.
Chair Powell made it clear that the Fed is prepared to accept some pain if necessary to tame inflation because of the latest economic data, Dye added.
Some businesses are already feeling that pain. According to Jose Figueroa, an employee at the East Harlem store, ONG Party Rentals has suffered a significant decline in sales in the past few months. He said he worries that customers will cut back on parties to pay for essential goods if the economy slows further.
“Inflation has gone up, food has gone up, you buy food primarily, rent keeps going up everywhere,” Figueroa said.
Apart from the jump in January, retail sales have been trending down in recent months. The recent monthly swings in retail sales may be partly the result of seasonal patterns and unusual weather, economists said. Before January, in December and November, retail sales were falling. A trend from November to February shows consumers are pulling back their spending in retail sales despite a spike in January.
Christopher Low, an economist at FHN Financial, pointed to auto sales as an example of how weather patterns affect retail sales data.
“Auto sales were low in February but rose twice as much in January,” Low said.
Low said that data from both January and February showed that weather played a factor in shifting spending patterns. He said that good weather in January meant that consumers could get to car dealers and were more likely to spend more than in the colder month of February.
The pullback means the Fed’s rising interest rates are cooling off the economy slowly.