The rebound in February retail sales was within expectations after a sharp drop in January that we believe was mostly because of a spending hangover from last year. Retail sales increased by 0.2% on the month, according to data from the Commerce Department on Monday.
The significant increase in the control group, which feeds into the calculation of gross domestic product, was a much-needed sign that should ease some of the growth concerns contributing to the selloff in equities over the past couple of weeks. The control group, which excludes more volatile categories like gasoline, rose by 1% in February.
Because Monday’s report was an estimate and the data is often subject to heavy revisions, we do not expect the data to alter the Federal Reserve’s decision to keep its policy rate unchanged at its meeting this week.
Still, there were also signs that suggested more is needed to ease concerns over weakening spending. Only six out of 13 categories registered an increase on the month. That figure was at least eight categories three months ago and 10 one year ago.
The key durable goods components like motor vehicles and furniture all dropped on the month, in what more likely was an inventory correction because of tariffs in the next couple of months.
Read more of RSM’s insights on the economy and the middle market.
January’s retail sales data was revised downward quite substantially for both the top line and the control data. The top-line figure fell to a decline of 1.2% from a drop of 0.9%. The control group was revised to a decline of 0.1% from a drop of 0.8%.
When Monday’s retail sales data is combined with the recent uncertainties in the economy, we expect a slightly more dovish Fed this week when it comes to its Summary of Economic Projections.
More likely than not, the Fed will revise down its growth forecast while revising up its inflation and unemployment forecasts.
But we should expect the Fed to explain why it will be important to remain cautious during this period amid the uncertainties in fiscal and trade policies.
