U.S. retail sales remained soft in the month of February per the recent data released by the United States Commerce Department, reflecting a decline of 0.1%, way behind the consensus expectation of 0.4% growth. January data, however, was revised upward to show sales dipping 0.1% instead of decline of 0.3% as previously reported. It marked three months of decline in a row, since April 2012.  

Among the various components of the retail sales, vehicles sales declined 0.9% in February, according to the monthly report. Furthermore, furniture sales, health care, and personal care sales, declined 0.8% and 0.4%, respectively. Sales at gasoline stores were down 1.2% and food sales decreased 0.1%.

However, the month’s bright spots were a 1.9% increase in building materials against a decline of 1.7% in January and 0.2% restaurant sales growth from a 0.1% gain the previous month. Also, sales at non-store retailers jumped 1% after a sharp fall in January.

Is There a Cause for Concern?

Following the data release, J.P. Morgan cut its first-quarter 2018 GDP forecast from 2.5% to 2%, while Goldman Sachs reduced the same to 1.8% from 2%. The Atlanta Fed’s GDP estimate fell to 1.9%, down from 2.5%.

Given that retail sales for the first two months of the first quarter were not so strong, its contribution to the quarter’s GDP should be below than last quarter and weigh on economic growth. In the fourth quarter, the economy grew 2.5%, but expectations are growth of 3% per the third revision which is due later this month.

However, looking further, core retail sales (which exclude sales related to vehicles, gasoline, building materials and food services and more closely indicate GDP trends)  inched up 0.1% after remaining unchanged in the month of January. The number was, however, lower than the consensus estimate of a 0.5% gain. Also, the monthly report states that retail sales increased 4% year over year, provided some breather.

Economists believe that an increase in spending on services should buoy first-quarter retail sales results and there is the likelihood of strong service spending given solid recent data.