Consumers added mystery to the current strength of the economy as they curtailed their spending in retail stores and restaurants in the first two months of the year.
U.S. retail sales decreased by 0.1 percent in February and what was initially reported as a 0.2 percent gain in January was revised to a 0.4 percent decrease, the Commerce Department reported on Tuesday.
The drop in February was slightly better than the median market forecast by Bloomberg, which called for a 0.2 percent drop. The decline is broad-based as eight out of 13 major categories went south.
With the significant revision in the initial report from January, retail sales are trending downwards this year,
“We didn’t expect such a big revision,” said Bricklin Dwyer, senior economist for North America at BNP Paribas. “The global economy is the main concern at the moment and it’s making its impact on American consumers.”
However, compared with a year ago, which might be tempting with the big monthly revisions lately, retail sales are performing better adding 4.8 percent excluding gasoline since February 2015.
“If you scratch under the surface and look at core sales, which is a good indicator, it’s not a disaster,” says Gregory Daco, chief economist at Oxford Economics. “I’m focusing more on the year numbers to see a trend.”
Core sales, which is sales excluded gasoline and autos, was left were unchanged from January.
Gasoline continues to distort the underlying strength of the economy. Service-stations receipts plunged 4.4 percent from last month, making it the biggest drop since September.
Jay Ricker, 65, is the founder and chairman of Ricker Oil Co. based in Anderson, Indiana. He started the company in 1979 and today 850 employees are working at his 56 stores and stations.
Ricker says that even though the numbers from the Commerce Department might suggests that consumers in general doesn’t spend the money they save on gasoline, he definitely sense a changed behavior among his customers.
“I’m looking at smokers who’s buying more expensive cigarettes,” says Ricker. “They are trading up buying brands instead of budget. They are buying premium gasoline too. People are obviously optimistic.”
According to The Association for Convenience & Fuel Retailing (NACS) Ricker is not the only retailer who’s experiencing an increase in spending at the service stations. Other members are also experiencing increased sales of everything from drinks to candy bars.
“You drive past a lot of gas stations and even though you are not buying gas, you still feel good about the low prices,” said Jeff Lenard, vice-president of the association.
NACS expects consumers to spend more in the upcoming months because they are now used to the low prices and. They published a consumer survey last week, which reveals that 50 percent of Americans are optimistic about the economy, which is 6 percentage points up from the month before.
Consumer spending drives almost 70 percent of the economic output and the consumer spending is one of the main reasons why the Federal Reserve decided to leave the federal funds rate unchanged on its current range of 0.25-0.50 percent.
The FED decided to downgrade expectations for additional rate hikes in 2016. In December, when they raised interest for the first time in nine years, they expected four rate hikes as they cited solid economic outlook for the year as the main factor in their decision-making. On Wednesday they readjusted that to two expected hikes this year.
FED-chairwoman Janet Yellen, 69, cited lower expectations for global growth as the major cloud on the economic skies and the major reason for the decisions made on the meeting. Yellen however remains confident on behalf of the domestic economy as especially the job market continues to strengthen.
“Our view is that they don’t hike at all this year,” said Dwyer. “This is definitely a signal that we need to be more cautious and with the positive momentum erased away, then now what?”