United States: Retail Sales Return to Tepid Growth

After January’s sharp decline, we might have expected a better performance from US retail sales. But that wasn’t the case—and what’s more, last month’s contraction was revised even further downwards, going from -0.9% to -1.2%. This is its steepest monthly drop since June 2021.

Sales growth in February came in slightly below expectations, as the consensus forecast had called for gains of 0.5%. The biggest surprise came from the automotive sector. While the number of new vehicles sold in February suggested that sales at dealerships would be up, they instead posted a startling 0.4% drop (which is still better than January’s 3.7% nosedive). This type of discrepancy is usually caused by consumers seeking out less expensive vehicles. US trade policy is shaking up the automotive sector, and we expect sales to slide further in the months and quarters ahead.

Excluding motor vehicles and parts, sales displayed somewhat healthier growth, but gains remained fairly concentrated. Online sales did particularly well after a more difficult January—without this sector, total sales would have decreased by 0.3% in February. Health and personal care stores also showed a bit more life in February.

Other retail categories posted rather disappointing results. Overall, we get the sense that households discretionary spending has weakened. Sales dipped at department stores, food and beverage stores, and clothing stores, all of which suggests that consumers are reining in their spending. A trend can’t be established in just one or two months, but when we combine these results with the recent dip in consumer confidence indexes and the potential impacts that tariffs could have on prices and household income, the situation is worrisome. We would have liked to see more strength before the tariffs are imposed, but the numbers for January and February instead point to lower real spending on goods in the first quarter.

February’s retail sales growth is disappointing, given the contraction recorded in January, and sources of disappointment are multiplying for the US economy. But the situation is not yet dire, and Fed officials seem willing to wait for now. However, we’ll need to keep an eye on further developments to see if the economy is negatively affected by the uncertainty and tariffs.