U.S. retail sales fell moderately in February, likely payback after the prior month's outsized increase, but the underlying momentum remained strong, suggesting the economy continued to expand in the first quarter despite higher borrowing costs.
"American consumers still appear to be spending at a rate that will make the Fed uncomfortable with the inflation outlook, warranting a further tap on the brakes," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
Retail sales are mostly goods and are not adjusted for inflation. Economists said challenges adjusting the data for shifts in spending patterns at the end and start of the year as well as higher prices were among the factors that had exaggerated January's retail sales surge. Spending is being supported by a tight labor market, which is generating higher wage growth. There were 1.9 job openings for every unemployed person in January.
Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.5% last month. These so-called core retail sales increased 2.3%% in January, revised up from the previously reported 1.7%. A separate report from the Labor Department showed the producer price index for final demand slipped 0.1% in February. Data for January was revised down to show the PPI increasing 0.3% instead of 0.7% as previously reported.
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