US retail sales falter; underlying producer prices rise solidly
A woman shops at Brookfield Place in Lower Manhattan in New York City, U.S., December 1, 2017. REUTERS/Brendan McDermid
WASHINGTON: U.S. retail sales fell for a third straight month in February as households cut back on purchases of motor vehicles and other big-ticket items, pointing to a slowdown in economic growth in the first quarter.Other data on Wednesday showed underlying producer prices increasing solidly in February amid strong gains in the cost of services such as hotel accommodation, airline fares and hospital inpatient care. Inflation is steadily rising and the Federal Reserve is expected to raise interest rates next week.The Commerce Department said retail sales slipped 0.1 percent last month. January data was revised to show sales dipping 0.1 percent instead of falling 0.3 percent as previously reported. It was the first time since April 2012 that retail sales have declined for three straight months.Economists polled by Reuters had forecast retail sales rising 0.3 percent in February. Retail sales in February increased 4.0 percent from a year ago.Excluding automobiles, gasoline, building materials and food services, retail sales edged up 0.1 percent last month after being unchanged in January. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.Consumer spending, which accounts for more than two-thirds of U.S. economic activity, appears to have slowed at the start of the year after accelerating at a 3.8 percent annualized rate in the fourth quarter.
The dollar slipped against a basket of currencies after the data, while prices for U.S. Treasuries were little moved. U.S. stock index futures slightly extended gains.Slower consumer spending supports expectations of moderate economic growth in the first quarter. GDP growth estimates for the January-March quarter are around a 2 percent annualized rate.The economy grew at a 2.5 percent pace in the fourth quarter. But revisions to December data on construction spending, factory orders and wholesale inventories have suggested the fourth-quarter growth estimate could be raised to a 3.0 percent pace. The government will publish its third estimate for fourth-quarter GDP growth later this month.STRONG LABOR MARKET
Consumer spending, however, remains underpinned by a strong labor market, which is viewed by Fed officials as being near or a little beyond full employment. The economy created 313,000 jobs in February.Consumer spending could also get a lift from a US$1.5 trillion income tax cut package. Auto sales fell 0.9 percent in February after a similar drop in January. Receipts at service stations declined 1.2 percent, reflecting lower gasoline prices.There were also declines in sales at furniture stores, health and personal care stores and electronics and appliance stores. But there were some pockets of strength. Sales at building material stores increased 1.9 percent last month.Receipts at clothing stores gained 0.4 percent and sales at online retailers surged 1.0 percent. Consumers also spent more at restaurants and bars and splurged on sporting goods and hobbies.In a separate report, the Labor Department said a key measure of underlying producer price pressures that excludes food, energy and trade services rose 0.4 percent last month, matching January's gain.That boosted the year-on-year increase in the so-called core PPI to 2.7 percent, the biggest gain since August 2014, from 2.5 percent in January. The increase in underlying wholesale prices supports views that consumer inflation will pick up this year.Economists believe that a tightening labor market, weak dollar and fiscal stimulus from the tax cuts and increased government spending will lift inflation toward the Fed's 2 percent target this year.The U.S. central bank's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, has undershot its target since May 2012.(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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