Retail Sales Climb In February As Consumer Activity Picks Up, But Miss Expectations: 'The Economy Is Slowing' (UPDATED)

Editor’s note: This story has been updated with additional details.

Retail sales climbed 0.6% in February, a welcome gain following a fall in January, but not as good as the 0.8% that was expected by economists.

The data showed that total sales for the December through to February period were up 2.1% from the same period a year ago. Among the biggest gainers in the February report, online retailers were up 6.4% from the same period a year ago, while food services and drinking places were up 6.3%.

February’s sales growth was a welcome sign of recovering consumer activity Thursday but failed to fully recover January’s much worse-than-expected 0.8% annual fall in sales. January’s number represented the biggest decline since March 2023, largely the consequence of post-holiday fatigue and severe winter storms over much of the country during the month.

‘The Economy Is Slowing’: Joseph Brusuelas, chief economist at RSM US, says the main bright spot was the 1.6% increase in outlays on motor vehicles and parts.

He added: “This means that individuals were trading in cars to purchase new vehicles, which in turn will add to the supply of used trucks and cars. That will provide near term relief to one factor that drove up goods prices inside the CPI.”

Jeffrey Roach, chief economist at LPL Financial, noted the downward revisions to previous months’ retail sales data.

He said: “The consumer has a bit more capacity to spend but the consistent downward revisions should tell us the economy is slowing.

“A helpful indicator to watch in the coming months is auto sales. If the economy is truly slowing, expect to see vehicle inventories swell and dealers offer more incentives.”

Ian Shepherdson, chief economist at Pantheon Macroeconomics, also pointed to the downward revisions and February’s “tepid” recovery. He says that, had last month’s CPI numbers not been so sticky, the Federal Reserve would likely have made its first rate cut in May.

Shepherson added: “Downward revisions and a muted February recovery signal an emerging consumer slowdown.”

The Consumer Picture: Analysts were expecting a decent February number given the surprisingly sticky February inflation data reported Tuesday. Consumer price rises drove the annual inflation rate to 3.2% in February, compared with 3.1% in January.

The CPI data also showed that average earnings are growing. This was also a feature of both the January and February jobs reports. Consumer spending is usually boosted during periods of high jobs and wage growth.

The numbers suggest healthy consumer activity, despite signs that household debt may becoming a little stretched. According to a report by the New York Fed, household debt grew by $212 billion to hit an all-time high of $17.5 trillion in the fourth quarter of 2023.

Credit card balances hit $1.13 trillion, while mortgage balances rose by $112 billion to $12.25 trillion. Auto loan balances rose by $12 billion to $1.61 trillion.

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