American consumers stayed home again in February making the last three months the weakest for retail sales since the final quarter of 2008 when the nation was in the midst of a recession and the financial crisis.
Retail sales dropped 0.6 percent in the month following declines of 0.8 percent in January and 0.9 percent in December, reported the Commerce Department today. It was the third miss on estimates in a row. Economists had forecast a 0.3 percent increase in February, a 0.4 percent decline in January and a 0.1 percent drop in December.
Some analysts blamed the dismal number on the weather and it was exceptionally cold in the Eastern half of the country in February, but that hardly answers for the December and January results. It is quite possible that February is the continuation of a trend that surfaced in December with disappointing holiday sales.
Sales excluding automobiles and gasoline slipped 0.2 percent, below the 0.3 percent estimate and the January result was revised down to -0.1 percent from 0.2 percent.
The decline was broad-based with 9 of 14 major categories falling. Automobile purchases dropped the most at 2.5 percent, with building materials next at 2.3 percent, but sales also sank in furniture, electronics and appliances, health and personal care, food service and drinking and general merchandise stores. Internet sales rose 2.2 percent and sporting goods, hobby and book stores posted a 2.3 percent gain.
Finally, the important 'control group ' category which feeds into the calculation for GDP was unchanged in February and January was revised down to -0.1 percent from 0.1 percent. It had been forecast to increase 0.4 percent. The retail sales control group has now averaged -0.05 percent for the two first quarter months.
With the largest component of U.S. GDP, consumer spending, lower for two-thirds of the first quarter, and several other important statistics weaker than expected, predictions for first quarter GDP have been steadily dropping.
Late last year many economists were predicting 3.0 percent to 3.5 percent growth for the year. Most forecast are now between 1.7 percent and 2.5 percent. The economy expanded at an annual rate of 2.2 percent in the fourth quarter.
The Atlanta Federal Reserve which last week surprised analysts with a 1.2 percent prediction for first quarter GDP, cut its estimate in half today, to 0.6 percent, by far the lowest major estimate.
Equities, however, found much to cheer in today's sales report, with the Dow adding 259 points.
The Fed talks a good rate normalization game and markets are beginning to price in a change of policy. But a truly weak economy, the kind we could soon have if consumers stay out of the malls much longer, might make the data dependent FOMC think more than twice about the dangers of a a mid-summer rate hike.
Chief Market Strategist
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