U.S. retail sales fell more than expected in February amid bitterly cold weather across the country, but a rebound is likely as the government disburses another round of pandemic relief money to mostly lower- and middle-income households.
The harsh weather also took a bite out of production at factories last month as the deep freeze in Texas and other parts of the South put some petroleum refineries, petrochemical facilities and plastic resin plants out of commission.
Federal Reserve officials, who started a two-day meeting on Tuesday, are likely to focus on the underlying economic strength, expectations of higher inflation and a steadily recovering labor market.
“We knew the economy took a major hit in February due to the brutally cold weather and a lot of snow,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. “No reason to panic over the February numbers, the economy is moving forward rapidly and it should pick up the pace as the latest stimulus payout hits home.”
Retail sales dropped by 3.0% last month, the Commerce Department said. But data for January was revised sharply up to show sales rebounding 7.6% instead of 5.3% as previously reported. Economists polled by Reuters had forecast retail sales falling only 0.5% in February.
Unseasonably cold weather gripped the country in February, with deadly snow storms lashing Texas. The decline in sales last month also reflected the fading boost from one-time $600 checks to households, which were part of nearly $900 billion in additional fiscal stimulus approved in late December, as well as delayed tax refunds.
The broad-based decrease was led by motor vehicles, with receipts at auto dealerships dropping 4.2%. Sales at clothing stores fell 2.8%. Consumers also slashed spending at restaurants and bars, leading to a 2.5% drop in receipts. Sales at restaurants and bars decreased 17% compared to February 2020.
Receipts at electronics and appliance stores dropped 1.9% and sales at furniture stores tumbled 3.8%. There were also big declines in sales at sporting goods, hobby, musical instrument and book stores. Receipts at food and beverage stores were unchanged. Sales at building material stores decreased 3.0%. Online retail sales plunged 5.4%.
Excluding automobiles, gasoline, building materials and food services, retail sales decreased 3.5% last month after surging by an upwardly revised 8.7% in January. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have shot up 6.0% in January.
President Joe Biden last week signed his $1.9 trillion rescue package into law, which will send additional $1,400 checks to households as well as extend a government-funded $300 weekly unemployment supplement through Sept. 6. Households have also accumulated $1.8 trillion in excess savings.
“This year, we expect the combination of an improved health situation and generous fiscal stimulus to fuel a consumer boom for the history books,” said Lydia Boussour, lead U.S. economist at Oxford Economics in New York.
Economists at Goldman Sachs on Saturday raised their first-quarter GDP growth estimate to a 6% annualized rate from a 5.5% pace, citing the latest stimulus from the Biden administration. The economy grew at a 4.1% rate in the fourth quarter.
Goldman Sachs forecast 7.0% growth this year. That would be the fastest growth since 1984 and would follow a 3.5% contraction last year, the worst performance in 74 years.
The rosy economic outlook was not dimmed by a separate report from the Fed on Tuesday showing output at factories tumbled 3.1% in February, also weighed down by a global semiconductor shortage because of the pandemic.
“While we expect these supply disruptions to be temporary, auto production could remain soft in the very near term,” said Veronica Clark, an economist at Citigroup in New York. “With substantial new fiscal stimulus to support demand for consumer goods in the coming months, supply disruptions could lead to rising prices.”
Indeed, supply constraints because of coronavirus-related restrictions are driving up commodity prices. A third report from the Labor Department showed import prices rose 1.3% last month after surging 1.4% in January. They jumped 3.0% on a year-on-year basis after rising 1.0% in January.
Graphic: Inflation –
Though inflation is expected to accelerate as early as the first half of this year, many economists do not expect it to spiral out of control with millions of Americans unemployed. Supply chain bottlenecks are also expected to start easing as more people around the globe get vaccinated.
The dollar has also strengthened so far this year against the currencies of the United States’ main trade partners.
“There is still a great deal of unused industrial capacity in the U.S. economy. This will help keep inflation under control throughout this year,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.