Americans cut their spending in February after a strong January

Americans cut their spending last month after a surprisingly expensive January.

Alicia Wallace, CNN

Americans cut their spending last month after a surprisingly expensive January.

US retail sales fell 0.4% in February from the previous month, the US Department of Commerce said on Wednesday.

That seasonally adjusted drop beat economists’ expectations of a 0.3% decline, Refinitiv estimates.

“There’s a lot of uncertainty right now, and many consumers are likely to play it safe until things change, for better or worse,” Randall Sargent, Oliver Wyman’s partner in retail and consumer goods, told CNN Business. in an interview.

Annual retail sales data, not adjusted for inflation, rose 5.4%.

With consumer prices rising 0.4%, real sales fell 0.8%, as shown in the February CPI report released on Tuesday.

Some of the biggest monthly declines were in food service and drink establishments (-2.2%), department stores (-4%), furniture and home goods stores (-2.5%) and car dealerships (-1.8% ).

“With labor market conditions likely to get even tepid amid tighter financial conditions and growing financial market uncertainty that is likely to dampen households’ willingness to spend, we forecast a modest pickup in consumer spending in the coming quarters,” said Gregory Dako, chief economist at EY Parthenon.

“Recent data on household spending and credit growth suggest that we are likely to see a K-shaped pattern of consumer spending in 2023, with low- and middle-income families showing more spending restrictions and higher-income families more will continue to spend. albeit with more caution,” he said.

February data shows consumers are spending less after a stronger-than-expected start to 2023. In January, consumers forked out after a muted holiday season. Retail sales rose an upwardly revised 3.2% in January, according to data from the Commerce Department’s Census Bureau.

Inflation has slowed somewhat, but the decline is not enough to change the behavior of consumers whose household finances have been hit hard by persistently high inflation over the past year, Oliver Wyman’s Sargent said.

“Over the past year, consumers have had to make difficult decisions and stop buying certain things that were part of their usual buying behavior,” she said. “Some of this might come back [as inflation comes down]but at lower prices, I don’t think it will really increase retail sales in the short term.”

Wednesday’s retail sales report is expected to feed into discussion and decision-making at a meeting of the Federal Open Market Committee next week. Federal Reserve policymakers are weighing how much more to tighten monetary policy to bring down high inflation, while keeping the recent instability in the banking sector in mind.

“Decreasing Producer Prices [data separately released Wednesday] combined with a pullback in retail sales is certainly good news for the Federal Reserve, especially as it must focus on maintaining financial stability in the face of bank failures at home and abroad,” said Quincy Crosby, chief global strategist at LPL Financial.

“While the market is under pressure this morning from Credit Suisse’s current troubles, specific inflation-related news should help the Fed reassure that its inflation crackdown campaign is moving in the right direction.”

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