Economic Report: U.S. retail sales grow at slower 0.3% pace as high inflation takes a bite out of the economy

United States

The numbers: Sales at U.S. retailers slowed sharply in February, rising a scant 0.3%, and Americans probably bought fewer goods like groceries, consumer electronics and furniture and after factoring in high inflation.

Economists polled by The Wall Street Journal had forecast a 0.4% advance.

The previously reported 3.8% increase in sales in January, however, was revised up to 4.9%, the government said Wednesday.

Taken together, the average increase in retail sales in the first two months of 2022 suggest the new year has gotten off to a decent start.

Retail sales are a big part of consumer spending and offer clues on the strength of the U.S. economy. Households are still buying plenty of goods and services to keep the economic recovery going, but in some cases consumers they are just paying more.

In February, the cost of living rose a sharp 0.8%, according to the consumer price index. Inflation-adjusted sales actually fell in February.

U.S. retail sales in February +3.8%
Autos & parts +0.8%
Home furnishings -1.0%
Electronics & appliances -0.6%
Home & garden centers +0.9%
Food & beverages -0.5%
Health & personal care -1.8%
Gasoline stations +5.3%
Clothing +1.1%
Sporting goods & hobbies +1.7%
General stores -0.2%
Miscellaneous stores +1.9%
Nonstore retailers -3.7%
Bars & restaurants +2.5%

Big picture: Americans have plenty of savings built up during the pandemic and they feel secure in their jobs. That’s given them the confidence to spend.

High inflation is altering their spending plans, however, and making them think twice about what they buy and how much. Rising prices could curb economic growth unless they relent soon, analysts say.

Key details: Retail sales were positive largely because of a 5.3% increase in spending on gasoline, but that reflects rising oil prices and is not good news for either consumers or the economy.

Sales for autos and parts also rose 0.8%. Auto sales account for about one-fifth of overall retail spending.

If those two categories are excluded, retail sales fell 0.4% last month.

Most of the decline in sales took place Internet retailers and stores that sell groceries, furniture, consumer electronics and health items.

One good sign: Sales at bars and restaurants snapped back after omicron cases nosedived and more people went back out to eat.

Higher spending on food outside the home is typically seen as a sign of a healthy economy. People go out more when economy is doing well.

Looking ahead: “Though cooling after January’s splurge, American consumers appear reasonably well positioned to keep spending, supported by recent massive job gains and high household savings,” said senior economist Sal Guatieri of BMO Capital Markets.

“This assumes, of course, no further major blows to fuel and food costs, confidence, and financial conditions stemming from the Russia-Ukraine war.”

Market reaction: The Dow Jones Industrial Average DJIA, +1.82% and S&P 500 SPX, +2.14% were set to open higher in Wednesday trades. Stocks surged on Tuesday after oil prices sank and a key measure of inflation rose less than expected.