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By Lucia Mutikani
March 17, 2025 – 7:22 AM PDT
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WASHINGTON (Reuters) – U.S. retail sales rebounded marginally in February as consumers pulled back on discretionary spending, reinforcing the growing uncertainty over the economy against the backdrop of tariffs and mass firings of federal government workers.
Nonetheless, the report from the Commerce Department on Monday suggested that the economy continued to grow in the first quarter, though at a moderate pace. It sketched a picture of a cautious consumer, with sales at restaurants and bars declining.
“This report should alleviate concerns that the economy already is shrinking,” said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. “But the risk of much weaker growth, as consumers seek to rebuild a savings buffer in response to concerns about job security, now looks elevated.”
Retail sales rose 0.2% last month after a downwardly revised 1.2% decline in January, the Commerce Department’s Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, advancing 0.6% after a previously reported 0.9% drop in January. That decline followed hefty gains in the fourth quarter and winter storms in many parts of the country in January as well as wildfires in California.
Sales increased 3.1% year-on-year in February. Monthly sales were lifted by a 2.4% jump in receipts from online stores. Sales at health and personal care stores jumped 1.7%.
Sales at building material and garden equipment suppliers gained 0.2%. But receipts at auto dealerships fell 0.4% after dropping 3.7% in January. Furniture store sales were unchanged while receipts at clothing stores fell 0.6% and those at electronic retailers dropped 0.3%.
Receipts at food services and drinking places, the only services component in the report, declined 1.5% after being unchanged in January. Economists view dining out as a key indicator of household finances. Lower gasoline prices helped to lower the value of sales at service stations by 1.0%.
With consumer sentiment sinking to a near 2-1/2-year low in March, sales could struggle in the months ahead.
President Donald Trump’s raft of tariffs, which have unleashed a trade war, has ignited worries about inflation as well as job and income losses, developments that could undercut consumer spending. Mass layoffs of public workers as part of an unprecedented campaign by the Trump administration to shrink the federal government are also seen hurting spending.
Retailers, including Kohl’s (KSS.N), Macy’s (M.N), Walmart (WMT.N) and Target (TGT.N) have tempered sales expectations amid mounting inflation and recession fears related to the tariffs.
SOFTENING DISCRETIONARY SPENDING
Bank of America card data showed early signs of softening discretionary spending such as at restaurants in February in the Washington D.C. metropolitan area, which includes parts of Maryland and Virginia. A stock market selloff could curb spending, predominantly driven by high-income households, while rising food prices could squeeze low-income households.
Treasury Secretary Scott Bessent said early this month the economy might slow as it transitions from public spending towards more private spending, calling it a “detox period.” On Sunday, Bessent said there were “no guarantees” there will not be a recession in the United States.
The dollar slipped against a basket of currencies. U.S. Treasury yields rose.
Federal Reserve officials meeting on Tuesday and Wednesday are expected to leave the U.S. central bank’s benchmark overnight interest rate in the 4.25%-4.50% range, having reduced it by 100 basis points since September, and continue to assess the economic impact of the Trump administration’s policies.
Financial markets expect the Fed to resume cutting borrowing costs in June after it paused its easing cycle in January amid a darkening economic outlook.
Retail sales excluding automobiles, gasoline, building materials and food services increased 1.0% in February after a downwardly revised 1.0% decline in January. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
A column chart titled “Monthly change in US core retail sales” that tracks the metric over the last year.
A column chart titled “Monthly change in US core retail sales” that tracks the metric over the last year.
Economists had forecast core retail sales rebounding 0.3% after a previously reported 0.8% drop in January. They expect consumer spending to slow significantly in the first quarter from the October-December quarter’s robust 4.2% annualized rate.
The Atlanta Federal Reserve is currently forecasting GDP contracting at a 2.4% pace. But most economists’ estimates are converging around a 1.2% growth rate this quarter. The economy grew at a 2.3% pace in the fourth quarter.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci
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