U.S. retail sales rebounded in February, suggesting that the economy continued to grow in the first quarter, though at a moderate pace as tariffs on imports and mass firings of federal government workers weigh on sentiment.
Retail sales rose 0.2% last month after a revised 1.2% decline in January, the Commerce Department’s Census Bureau said on Monday. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, advancing 0.6% after a previously reported 0.9% drop in January.
That decline followed hefty gains in the fourth quarter and winter storms in many parts of the country in January as well as wildfires in California.
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But with consumer sentiment sinking to a near 2-1/2-year low in March, the momentum is unlikely to be sustained.
President Donald Trump’s raft of tariffs, which have unleashed a trade war, have ignited worries about inflation as well as job and income losses, developments that could undercut consumer spending. Mass layoffs of public workers as part of an unprecedented campaign by the Trump administration to shrink the federal government are also seen hurting spending.
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Bank of America card data showed early signs of softening discretionary spending such as at restaurants in February in the Washington D.C. metropolitan area, which includes parts of Maryland and Virginia. A stock market selloff could curb spending, predominantly driven by high-income households, while rising food prices could squeeze low-income households.
Treasury Secretary Scott Bessent said early this month the economy might slow as it transitions from public spending towards more private spending, calling it a “detox period.”
Retail sales excluding automobiles, gasoline, building materials and food services increased 1.0% in February after a revised 1.0% decline in January. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
Economists had forecast core retail sales rebounding 0.3% after a previously reported 0.8% drop in January. They expect consumer spending to slow significantly in the first quarter from the October-December quarter’s robust 4.2% annualized rate.
The Atlanta Federal Reserve is currently forecasting GDP contracting at a 2.4% pace. But most economists’ estimates are converging around a 1.2% growth rate this quarter. The economy grew at a 2.3% pace in the fourth quarter.
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