US retail sales rose less than expected in February, a possible sign of a softer economy, but not necessarily of consumer weakness.

February retail sales rose a seasonally adjusted 0.6 percent according to a Census Bureau report on Thursday. This was lower than the average estimate of a 0.8 percent gain from economists surveyed by Bloomberg, but still a welcome sign after a surprising 1.1 percent drop in retail sales from December 2023 to January 2024. 

The report is a sign of consumer resilience in the face of inflation and high interest rates. But it could also mean that the Federal Reserve’s goal of 2 percent inflation may be growing more distant as demand remains strong.

“Economists seem to underestimate the resilience of the American consumer,” Peter G. Morici, economist and former Professor Emeritus at the University of Maryland, said.

The report comes amid another increase in the Consumer Price Index in February, a 3.4 percent gain from last year, according to the Bureau of Labor Statistics. Still, consumers seem to be continuing to spend, despite high prices.

Some stores, such as Dapper Luq, a men’s clothier in Virginia Beach, Virginia, did well, despite the lower-than-expected retail sales number. Owner Luqman Haskett said his sales were higher than average for the month of February.

“We’re still making the kind of growth we want and the kind of income margin we want for our sales,” Haskett said.

Long term numbers also show that consumers continued to buy in key areas. Retail sales were up 1.5 percent from the previous year. Meanwhile, non-store retailers and food services/drinking retailers were up 6.4 percent and 6.3 percent from February 2023, respectively.

Other signs of a healthy economy, such as the labor market, remain. Though unemployment rose to 3.9 percent, employers added 275,000 jobs in February, according to the U.S. Bureau of Labor Statistics. Also, despite holding back when it came to shopping, Americans continued to travel for leisure.

John D. Hermann, founder of Hermann Forecasting LLC, said that reduced spending in retail, combined with strong labor market and travel data, could be signs of a “healthy pullback,” rather than a reduction made from fear of an unhealthy economy.

“If you have a fear of getting laid off, you’re definitely not going to take a 10-day trip to Hawaii,” Hermann said.

Hermann also said that consumers were likely taking advantage of the Federal Reserve’s high interest rates to place money in savings accounts and certificates of deposits.

“Just because they [consumers] are being careful, doesn’t mean they don’t have the money,” Hermann said.

Economists remain divided on the economic outlook for the remainder of 2024. For example, Kevin Cummins, chief economist at Natwest Markets, believes that the economy will slow. 

“Some of the tail winds that we had last year from earlier fiscal policy being very expansionary and allowing people to spend as long as they did last year, a lot of that probably has passed and now consumption is going to be based on income growth more,” Cummins said. “So, it’ll probably be weaker.”

Others are more optimistic. Hermann blamed the lower-than-expected retail sales number on environmental factors, such as the cold front experienced by the Northeast states in February, and expects retail sales to grow as the weather gets warmer.

“If people are pulling back the reins in January and February, then that simply gives them more ammunition to spend in retail in the second, third and fourth quarter of the year,” Hermann said. “We’re all concerned about the recession risk, but there’s nothing flashing.”