After a shopping spree in January, American consumers cut back on their spending in February, highlighting the instability of the economic climate.
According to government data released on Wednesday, retail sales decreased by 0.4% in February after increasing by a corrected 3.2% in January. The crucial holiday season months of November and December saw a decline in retail sales.
Automobile sales fell by 1.8% in February, and there was also a reduction in business at restaurants and retailers that sell furniture and clothing. According to the Commerce Department, sales decreased from January by 0.1% when vehicles were excluded.
Restaurant sales dipped 2.2% in February compared to January, while furniture store sales fell 2.5%. Department store sales fell 4%. Yet, the survey shows that consumers spent more money online, in electronics, health, and beauty, and food retailers.
Customers are still largely resilient, helped by a robust job market. In February, employers in America created 311,000 new jobs, which was less than the enormous increase in January. Nonetheless, they continue to struggle with expensive costs across the board.
According to government data released on Tuesday, consumer price rises in the United States somewhat decreased from January to February, but they remained high, creating a problem for the Federal Reserve at a critical time for the financial system. Last month, prices rose 0.4%, barely shy of January’s 0.5% increase. But, core prices—those that don’t include volatile food and energy prices—rose 0.5% in February, up from 0.4% in January.
The failure of two major banks since Friday has increased concern about smaller regional banks, so for the time being, the Fed may place more emphasis on restoring financial system confidence than on its long-term effort to control inflation.
But, it is yet unclear if news coverage of bank failures and stock market swings would negatively impact consumer mood this month, according to a research released on Wednesday by Capital Economics’ Deputy Chief U.S. Economist Andrew Hunter.
The University of Michigan consumer confidence survey, which will be issued on Friday, will contain the initial reading. The greater effect on consumers will undoubtedly result from tighter credit requirements, according to economists.
Consumer sentiments are likely to become more cautious over time as the labor market softens in reaction to tight monetary policy, according to Rubeela Farooqi, chief U.S. economist at forecasting company High Frequency Economics.
The retail sales report was released at a time when numerous retailers of all stripes, including Walmart, Target, Home Depot, and Macy’s, released already cautious annual outlooks last month that indicated a slowdown in consumer spending, particularly on clothing and furniture as consumers cope with higher prices as well as rising interest rates that increase borrowing costs.
While the problems with the supply chain have largely subsided, John David Rainey, chief financial officer of Walmart, noted on the call last month that prices are still high and that consumers are under a lot of pressure.
The longer-term trend, according to Claire Tassin, retail and e-commerce analyst at Morning Consult, a survey research technology business, suggests that consumers are cutting back on discretionary spending, which has the biggest effects on department shops and home furnishings retailers.
Budgets for customers give priority to necessities, she continued.
The retail survey, which was announced on Wednesday, only accounts for approximately a third of total consumer spending and excludes items like hotel stays and airline tickets, which have increased as the COVID-19 threat has diminished.