Retail Sales, Producer Prices Decline: U.S. Economic Takeaways

  • Sales off 0.1 percent in February; January revised to decline
  • Core retail purchases unchanged after smaller gain month prior

U.S. Retail Sales Fall in Feb., Jan. Revised Down

What you need to know about Tuesday’s U.S. economic data:

RETAIL SALES (FEBRUARY)

  • Fell 0.1 percent after 0.4 percent January decline (revised from 0.2 percent gain)
  • Downward revision to January was broad-based
  • Eight of 13 retail sales categories declined in February
  • Measure of retail sales that goes into GDP, which excludes auto, food, gasoline and building supplies, unchanged after 0.2 percent gain (revised from 0.6 percent advance)

The Takeaway: It was all about the revision to January. Optimism that consumer spending got off to a strong start to 2016 was dashed by the sharp adjustment lower. February results did little to alter that view as sales of automobiles, gasoline (price-related), furniture and general merchandise remained weak. Firms including Barclays and Macroeconomic Advisers reduced their tracking estimates for 1Q gross domestic product. The data call into question whether the household purchases that make up the bulk of GDP can continue to do the heavy lifting as businesses contend with a strong dollar, sluggish overseas demand and limited capital spending. Federal Reserve officials meeting Tuesday and Wednesday will have to weigh a diminished outlook for outlays against a brighter jobs picture as they mull whether and when to increase the benchmark interest rate.

PRODUCER-PRICE INDEX (FEBRUARY)

  • Fell 0.2 percent after a 0.1 percent gain in January
  • PPI excluding food, fuel and trade services rose 0.1 percent and climbed 0.9 percent from February 2015
  • Food costs dropped 0.3 percent, including a 19 percent slump in vegetable prices that was the largest since April 2011
  • Energy prices declined 3.4 percent, with gasoline down 15.1 percent

The Takeaway: The figures show inflation is languishing below the Fed’s goal. “It continues to indicate an overall weak environment for prices,” said Gregory Daco at Oxford Economics. In addition to cheap energy, the stronger dollar and lingering slack in the economy are also keeping price pressures muted within the production pipeline, with little scope for pass-through to consumers.

NAHB HOMEBUILDER SENTIMENT (MARCH)

  • Held at 58 to match the lowest level since May (forecast was 59)
  • Potential-buyer traffic improved, while sales outlook declined to one-year low
  • Builder confidence improved in South and Northeast, flat in rest of country

The Takeaway: This month’s run of housing data is off to a less-than-inspiring start. The decline in sales expectations is especially problematic considering the industry’s all-important spring-selling season is approaching. Housing has been hampered in recent years by a tight supply of land and workers. While the industry remains on stable footing, progress is choppy at best.

EMPIRE STATE MANUFACTURING (MARCH)

  • Rose to 0.6 (forecast was -10.5) from -16.6
  • Index for factory activity in New York state is highest since July
  • Orders and shipments gauges climbed, while measures of employment and inventories declined

The Takeaway: The manufacturing survey covering the state of New York returned to positive territory for the first time in eight months, signaling the worst may be over for the struggling industry. The state’s manufacturing base is relatively small, so confirmation from other regional reports that the industry is stabilizing will be needed in the coming weeks. New orders, a more forward-looking indicator, climbed to 9.6, the highest since September 2014 and a sign that factory activity may start to recover in the months ahead.

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