Weak Retail Sales and Slumping Sentiment Point to Stretched Consumers

March 16, 2024

American consumers are souring on the economy and spending less than expected, calling into question how much longer they can continue powering the U.S. economy’s impressive growth.

U.S. retail sales, which includes spending in-store, online, and at restaurants, rose by a seasonally adjusted 0.6% in February as compared to the month prior, according to the Commerce Department. While that marks a rebound from January’s decline, it is short of the 0.8% increase that economists polled by the Wall Street Journal had been expecting.

January’s retail sales also saw a sizable downward revision to the already disappointing figure. The Commerce Department now reports that sales slowed 1.1% instead of the previously reported 0.8%. A slowdown in January after the holiday shopping season is typical, but the slowdown this year was larger than usual. Part of that can be attributed to severe weather dragging down sales of building materials, but in that context, that means part of February’s “rebound” was simply purchases that would have been made in January if the weather had been less inclement.

February’s numbers were also boosted by consumers spending more at the gas station and a rebound in auto sales. When spending at gas stations and auto dealers is excluded, the month’s sales were up just 0.3%.

Taken together, the two month’s sales data point to a consumer base that may finally be slowing down on spending after weathering years of elevated inflation and high interest rates.

The University of Michigan’s consumer sentiment index fell in mid-March, dropping to 76.5 from 76.9 last month. While relatively minuscule, the downturn came as a surprise to economists polled by the Wall Street Journal, who had been expecting a slight uptick.

Consumer spending accounts for roughly two-thirds of all economic activity, and stronger-than-expected spending helped power U.S. GDP growth last year that far outpaced other developed nations. 

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