Retail Sales See Smallest Gain in Six Months

Economic Indicators Reuters

U.S. retail sales recorded their smallest increase in six months in February as households cut back on motor vehicle purchases and discretionary spending, the latest indication that the economy lost further momentum in the first quarter.

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The Commerce Department said on Wednesday retail sales edged up 0.1 percent last month, the weakest reading since August. January's retail sales were revised up to show a 0.6 percent rise instead of the previously reported 0.4 percent advance.

Sales were also likely held back by delays in issuing tax refunds this year as part of efforts by the government to combat fraud.

Compared to February last year retail sales were up 5.7 percent. 

Excluding automobiles, gasoline, building materials and food
services, retail sales gained 0.1 percent after an upwardly revised 0.8 percent jump in January. These so-called core retail sales, which correspond most closely with the consumer spending
component of gross domestic product, were previously reported to have increased 0.4 percent in January.

Economists polled by Reuters had forecast retail sales edging up 0.1 percent and core sales gaining 0.2 percent last month. Signs of cooling domestic demand will probably not prevent the FederalReserve from raising interest rates later on Wednesday against the backdrop of firming inflation and a tightening labor market.

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The U.S. central bank is expected to raise its overnight benchmark interest rate by 25 basis points to a range of 0.75 percent to 1.00 percent on Wednesday. It increased borrowing costs last December and has forecast three rate hikes in 2017.

February's retail sales added to January's weak reports on trade, construction and business spending that have pointed to sluggish economic growth in the first quarter.

The Atlanta Fed is forecasting GDP rising at a 1.2 percent annualized rate in the first quarter. With the labor market near full employment, slowing growth probably understates the health of the economy. In addition, GDP growth tends to be weaker in the first quarter because of calculation issues that the government has acknowledged and is working to resolve.

Tightening labor market conditions, which are steadily lifting wages, continue to underpin consumer spending.

In February, motor vehicle sales fell 0.2 percent after declining 1.3 percent the prior month. Receipts at service stations slipped 0.6 percent, reflecting lower gasoline prices.

Sales at electronics and appliances stores fell 2.8 percent, the biggest decline since December 2011, after climbing 1.1 percent in January. Receipts at building material stores increased 1.8 percent.

Sales at clothing stores fell 0.5 percent. Retailers including J.C. Penney Co Inc <JCP.N>, Abercrombie & Fitch <ANF.N> and Macy's Inc <M.N> are scaling back on brick-and-mortar operations amid increased competition from online retailers, led by Amazon.com <AMZN.O>.

Sales at online retailers jumped 1.2 percent last month after increasing 0.5 percent in January. Receipts at restaurants and bars dipped 0.1 percent, while sales at sporting goods and hobby stores fell 0.4 percent. 

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)