Lower gas prices drag down retail sales in February
Veronica Jackson in her Rocket Vintage boutique at Adams Gateway in Los Angeles on Feb. 13.
Retail sales fell in February as gasoline prices plunged and frugal consumers refused to fulfill their role as a key economic driver.
Last month, retail sales fell 0.1% from January, to $447.3 billion, the Commerce Department said Tuesday. That was in line with what economists surveyed by FactSet had predicted.
In what could be a more troubling sign of tepid consumer demand, January retail sales were revised to a decline of 0.4%, instead of the previously reported growth of 0.2%.
“Consumers remain on a fragile footing,†said Lindsey Piegza, chief economist at Stifel Fixed Income. They are “restrained by still-modest income gains and lingering uncertainty.â€
The monthly retail sales report is considered an important gauge of consumer spending, which makes up two-thirds of U.S. economic activity.
Many economists have been predicting for more than a year that cheaper gas and improving wages would translate into an uptick in retail sales. However, consumers have shown a marked reluctance to spend, opting instead to bank those savings or pay down debt.
The February results could signal that the frugality will continue well into 2016, despite evidence that the U.S. economy is doing well in the face of turmoil in financial markets and slowing global growth. In February, U.S. employers added a surprisingly strong 242,000 net new jobs, quieting fears that the country was sliding toward recession.
Lackluster spending could hold back economic growth this year, Piegza said.
“Without a meaningful pickup in spending, the U.S. economy will be hard pressed to maintain a stagnant 2% pace,†she said.
Another reason for shopper reluctance: Wages suddenly appear to be headed in the wrong direction.
Average hourly earnings declined 3 cents an hour to $25.35 in February, according to the Labor Department. The surprising decline was the largest monthly drop since 2014 and followed a 12-cent increase in average hourly earnings in January.
“The retail story is always tied to compensation,†said Steve Blitz, chief economist of ITG Investment Research. Wages are especially important now, he said, because consumers are less inclined to use credit cards and loans to pay for shopping.
Federal Reserve policymakers cited solid retail sales as among their reasons for increasing the central bank’s benchmark short-term interest rate in December, after keeping it near zero for seven years. Economists say the disappointing retail sales report undercuts the strong jobs report as members of the Federal Open Market Committee consider monetary policy and interest rates at its meeting Tuesday and Wednesday.
Auto-related categories were a big drag last month. Sales at gasoline stations fell 4.4%, while a decrease in auto buying pushed down motor vehicle and parts dealers by 0.2%, the Commerce Department reported.
Eight of 13 categories saw a drop.
Furniture stores reported that sales fell 0.5%. Electronics and appliance shops showed a 0.1% decline.
But some sectors enjoyed growth, including clothing and accessories, which grew 0.9%, and health and personal care stores, which saw a 0.7% rise.
Twitter: @ByShanLi
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