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Americans spent only slightly more last month at retail stores compared with January, a sign of consumer caution despite rising optimism about the economy.
The Commerce Department said Wednesday retail sales ticked up a seasonally adjusted 0.1 percent in February, after a much bigger gain of 0.6 percent the previous month. January’s gain was revised higher.
The figures suggest that strong job gains this year, near record-high stock prices and decent pay gains haven’t yet lifted spending. But last month’s sluggish pace could prove temporary.
Economists note that spending was likely held back by delays in tax refund payments. A new law has required tougher scrutiny of a tax credit claimed by lower-income taxpayers. Walmart said last month that the delay had slowed sales at its stores in February. Other retailers have reported similar concerns.
Yet tax refunds have started to flow this month, which could trigger a rebound.
Economists also were encouraged by the upward revisions to January’s sales data, which point to potentially faster growth in the first three months of the year.
A separate report showed inflation rose in February and is now comfortably above the Federal Reserve’s target of 2 percent. The Fed is expected to announce its third rate hike in 15 months on Wednesday.
“Inflation is trending gradually higher and underlying retail sales are healthy enough,” said Paul Ashworth, chief U.S. economist at Capital Economics. “Nothing here to suggest the Fed shouldn’t raise interest rates at the FOMC meeting that concludes later today.”
Sales rose in February at furniture stores and home and garden centers. But they fell sharply at electronics and appliance stores. Sales also fell at gas stations, though that mostly reflects lower prices. Clothing stores, sporting goods retailers and department stores also all reported lower sales.
There are several additional factors that could drive spending higher in the months ahead. Consumer confidence soared to its highest level in more than 15 years in February, according to the Conference Board, a business research group.
Hiring and average hourly pay growth have picked up since the new year. Americans’ finances are in better shape, with average home prices back to their pre-recession levels in much of the country.
Yet the boost in confidence may not be broadly shared. That could limit any spending that might result. For Americans younger than age 35, who are less likely than older age groups to own a home or stocks, confidence actually fell last month.
And the consumer confidence data has grown increasingly political in recent years, with Republicans reporting much greater optimism than Democrats. That reverses a pattern that emerged under former President Barack Obama.
Retail sales make up about one-third of total consumer spending, with the other two-thirds consisting of healthcare and other services. Economists closely monitor spending, because it makes up about 70 percent of the economy.
Growth has yet to catch up with the recent burst of optimism that has followed Donald Trump’s election. The economy expanded at a modest 1.9 percent pace in the final three months of last year. Most economists expect it will grow at roughly a 2 percent pace in the January-March quarter.
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