Sales Probably Cooled as Fuel Prices Rose: U.S. Economy Preview
By Bob Willis
Consumer spending at U.S. retailers slowed in February as increasing fuel costs eroded Americans' buying power, economists said reports this week will show.
Purchases rose 0.2 percent last month after a 0.3 percent gain in January, according to the median estimate in a Bloomberg News survey before a March 13 Commerce Department report. Figures from the Labor Department the following day may show the cost of living increased.
A weakening job market and rising gasoline costs are hurting consumer confidence and spending, increasing the odds the economy is already in a recession. Investors last week raised bets the Federal Reserve will keep cutting the benchmark interest rate, currently at 3 percent, as it focuses on reviving growth over taming inflation.
Sales are ``reflecting the many strains on consumers,'' said Drew Matus, senior economist at Lehman Brothers Holdings Inc. in New York. ``We expect the Fed to cut rates to 1.5 percent by early 2009.''
Auto purchases in February were little changed from a three-year low reached in January, according to industry figures last week. Retail sales excluding automobiles also increased 0.2 percent after a 0.3 percent January gain, according to the Bloomberg survey.
Sales at chain stores in February increased more than forecast, as consumers suffering from higher fuel bills and the slump in hiring rushed to discounters such as Wal-Mart Stores Inc., according to figures from the International Council of Shopping Centers issued last week.
``It does seem like this consumer sentiment is continuing to be affected by housing and credit,'' Richard Wagoner, chief executive officer of General Motors Corp., said in a Bloomberg Television interview March 4. ``I honestly can't tell you when and if we're going to see things turn back this year.''
Ethan Harris at Lehman Brothers and Bruce Kasman at JPMorgan Chase & Co. were among economists last week who said the U.S. had already fallen into a recession after the Labor Department reported the economy lost 63,000 jobs in February. They joined colleagues at Merrill Lynch & Co., Goldman Sachs Group Inc. and Morgan Stanley who had previously made a similar call.
The decline in payrolls was the second in a row and the biggest since March 2003.
``It's another nail in the consumer's coffin,'' said Josh Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.
Weaker job growth, the biggest declines in home prices in at least 20 years and energy costs at record highs have shaken Americans' confidence. Consumer sentiment probably fell this month to the lowest level in 16 years, economists project a preliminary report from Reuters/University of Michigan on March 14 will show.
A Labor Department report on the same day may show prices paid by consumers rose 0.3 percent in February, according to the Bloomberg survey median, after a 0.4 percent gain the prior month. Excluding food and energy, so-called core prices probably increased 0.2 percent after a 0.3 percent gain the prior month.
Even as growth is slowing, inflation remains a concern for Fed policy makers as crude oil prices continue to rise, reaching an intraday record of $106.54 a barrel last week.
Still, some Fed policy makers have reiterated in recent weeks that slowing growth is the greater risk to the economy.
The Fed ``will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,'' Fed Chairman Ben S. Bernanke said in testimony to Congress Feb. 27.
Traders are virtually certain the central bank will lower the benchmark rate by three-quarters of a percentage point at its March 18 meeting, according to futures markets. A month ago, the odds of a cut that large were only about 25 percent.
Also next week, the Commerce Department on March 11 may report the trade deficit in January widened to $59.6 billion, according to a Bloomberg survey, from $58.8 billion in December, as higher oil prices boosted the cost of oil imports.
Release Period Prior Median
Indicator Date Value Forecast
Whlsale Inv. MOM% 3/10 Jan. 1.1% 0.5%
Trade Balance $ Blns 3/11 Jan. -58.8 -59.6
Federal Budget $ Blns 3/12 Feb. -120.0 -165.0
Import Prices MOM% 3/13 Feb. 1.7% 0.8%
Import Prices YOY% 3/13 Feb. 13.7% 14.6%
Retail Sales MOM% 3/13 Feb. 0.3% 0.2%
Retail ex-autos MOM% 3/13 Feb. 0.3% 0.2%
Initial Claims ,000's 3/13 9-Mar 351 355
Cont. Claims ,000's 3/13 2-Mar 2831 2835
Business Inv. MOM% 3/13 Jan. 0.6% 0.5%
CPI MOM% 3/14 Feb. 0.4% 0.3%
Core CPI MOM% 3/14 Feb. 0.3% 0.2%
CPI YOY% 3/14 Feb. 4.3% 4.3%
Core CPI YOY% 3/14 Feb. 2.5% 2.4%
U of [bn:PRSN=1] Mich Conf . Index 3/14 March P 70.8 69.0