Feb retail sales dip as consumers cut spending amid slowing economy

In an indication that the US economy is slowing, retail sales declined in February as households reduced their spending on key commodities. Statistics published by the Commerce Department Monday showed spending on electronics, apparels, building materials, and grocery, among others, declined significantly last month.

Considering the fact that consumer spending accounts for about two-thirds of the overall economic activity, even the slightest drop in retail sales can have a noticeable impact. The negative effect of the partial government shutdown seems to have lingered last month though it ended towards the end of January. Reports say that adverse weather conditions, such as the snowstorm, prompted households to postpone their purchases.

Consumers’ willingness to spend has been dampened mainly by the slump in the global economy. In the previous periods, there was an uptick in spending due to increased government spending and benefits from the income tax reform implemented in 2017, the effect of which has been diminishing due to the delay on the part of the authorities to process tax refunds.

Since consumer spending accounts for about two-thirds of the economic activity, even the slightest dip in retails sales can have an impact

Reflecting the negative consumer sentiment, the benchmark retail sales index slipped 0.2% sequentially in February, after registering a 0.7% growth in January. Economists had forecast an increase for the last month. Year-on-year, sales increased by 2.2% in February, indicating a trend that is broadly in line with inflation.

Leading February’s downturn, building materials sales slipped 4.4%, followed by electronics and groceries which witnessed declines of 1% each. Meanwhile, the automotive sector emerged a surprise gainer, recovering modestly from the previous month’s contraction.

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The weakness in economic activity could translate into another slowdown in GDP growth in the first quarter. During the October-December period, the economy expanded at a slower rate of 2.2% than the 3.4% growth recorded in the third quarter. Also, the recent hike in interest rates and the ongoing US-China trade war continue to pose challenges to the economy.

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