US retail sales rebounded less than expected in February, and consumer spending appeared to be slowing in the first quarter due to rising inflation and high borrowing costs. However, the signs of slowing economic activity are unlikely to prompt the Federal Reserve to start cutting interest rates before June. 

The labor market remains tight, with fewer Americans applying for unemployment benefits and laid-off workers finding new work. Retail sales rose 0.6% in February, compared to a forecast of 0.8%. Consumer spending is holding up despite higher inflation, with building material and garden equipment store sales rebounding 2.2%, motor vehicle and parts dealers accelerating 1.6%, gasoline stations increasing 0.9%, and electronics and appliance outlets soaring 1.5%.

Online sales decreased by 0.1%, while sales at clothing, health, and personal care stores decreased by 1.1%. Furniture store sales decreased by 1.1%, while sporting goods, hobby, musical instrument, and book store sales remained unchanged. Retail sales excluding automobiles, gasoline, building materials, and food services were unchanged in February. 

Consumer spending is cooling in the first quarter after fuelling economic growth in the fourth quarter of 2023. The Atlanta Fed forecasts GDP to increase at a 2.5% annualized rate in the first quarter, while the economy grew at a 3.2% pace in the fourth quarter. U.S. stocks opened lower, and the dollar rose against a basket of currencies. Initial claims for state unemployment benefits fell 1,000 to a seasonally adjusted 209,000 for the week ended March 9. The number of people receiving benefits after an initial week of aid increased 17,000 to 1.811 million during the week ending March 2.

The Labor Department’s report indicates that the producer price index for final demand rose 0.6% in February, a 0.3% increase from an unrevised 0.3% in January. The increase was driven by a 1.2% jump in goods prices, with energy products driving the rise. In the 12 months through February, the PPI increased 1.6%, following a 1.1% increase in January. 

Consumer prices also increased for a second consecutive month in February, with wholesale gasoline prices rising 6.8% and food prices up 1.1% due to increased costs of eggs and beef. Goods prices rose 0.3%, matching January’s gain, suggesting that goods deflation was drawing to an end and services would need to pick up the slack in easing price pressure. The core PCE price index increased 0.3% in February, and core inflation is forecast to rise 2.8% in February.

Source: Globe and Mail