Decline in U.S. retail sales confounds analysts after tax cuts

According to data released by the Commerce Department U.S. retail sales fell in February for a third straight month unexpectedly

USA retail sales fell for a third straight month in February as households cut back on purchases of motor vehicles and other big-ticket items, pointing to a slowdown in economic growth in the first quarter.

United States consumers spent less at auto dealers, gas stations and department stores in February, causing overall retail sales to slip 0.1 percent despite signs elsewhere of a robust economy and the tax cuts signed into law by President Donald Trump starting to take effect.

There were also declines in sales at furniture stores, health and personal care stores and electronics and appliance stores.

The three-month moving average of retail sales growth is +4.4% Y/Y, notes the NRF.

Auto sales fell 0.9 per cent last month, while purchases at gas stations tumbled 1.2 per cent. Sales at department stores declined 0.9 per cent. Retail sales in February increased 4% from a year ago.

Mr Trump hopes that his tax cuts, passed at the end of past year, will boost the economy in part by powering a rise in consumer spending, which accounts for two thirds of the USA economy.

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Consumer spending remains underpinned by a strong labour market, which is viewed by Fed officials as being near or a little beyond full employment. In February, the United States economy has created 313,000 new jobs. Consumer spending could also get a lift from a $1.5 trillion income tax cut package. The poor retail sales readings have confounded several reports showing that consumer confidence is soaring and are likely to weigh on first quarter growth.

"It's the year-over-year numbers that are more important", said Jack Kleinhenz, chief economist at the National Retail Federation. The government will publish its third estimate for fourth-quarter GDP growth later this month. The numbers exclude automobiles, gasoline stations and restaurants.

Auto sales fell 0.9 percent in February after a similar drop in January.

But there were some pockets of strength. That boosted the year-on-year increase in the so-called core producer price index to 2.7%, the biggest gain since August 2014, from 2.5% in January.

"We firmly believe that core consumer price inflation is rising and the March CPI report will be the acid test of that hypothesis", said John Ryding, chief economist at RDQ Economics in NY.

Non-store sales, including online pureplays, reached $55.1 billion, which is a 1 percent increase over January and 10.1% gain when compared the prior year period. The sales in restaurants and bars rose by 0.2%.

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