Lower car sales drag February retail sales to negative territory

Reflecting the underlying weakness in private consumption and allaying fears of aggressive rate cuts by the Federal Reserve, retail sales dipped further in February, contrary to expectations for a moderate increase. A communiqué from the statistical office today said retail sales contracted for the third month in a row, apparently leveling-off after the hot holiday sales. A marked decrease in sales of private vehicles mainly drove the negative growth in February.

Households continued to keep away from spending on high-value items, especially automobiles, though economists had predicted a spurt in car sales in the wake of the widespread destruction caused by hurricanes.

The latest retail sales numbers and the retreat of consumer price inflation last month, after striking a record high in January, signaled that economic growth is cooling.

Taking a cue from the downturn in inflationary pressure, with inflation inching towards the target, the Federal Reserve is likely to stick to its proposed three rate hikes this year.

Retail sales dipped 0.1% in February as it did in the preceding two months. It is the first time in more than five years the index stayed in the negative territory for three consecutive months.  Excluding the auto and gas components, retail sales moved up 0.2% during the month.

Households continued to keep away from spending on high-value items, especially automobiles

In addition to automobile dealers and gas stations, department stores, health and personal care stores, furniture and home furnishing stores and electronics stores registered a decline in sales.

Meanwhile, the softness in household spending is seen as a temporary phenomenon; given the strong wage growth and a low unemployment rate that boosted the overall job market sentiment in the past few months. Moreover, the massive income tax cut introduced under the federal tax reform would catalyze the growth of households’ purchasing power.