U.S. Retail Sales Rose in February

Retail spending in the U.S. in February rose by 0.3%, exceeding market expectations for a decline of 0.2%. The increase was somewhat dampened by January’s gain being revised down to 0.1% from 0.5%. Excluding autos, sales increased by a strong 0.8% in February, beating expectations for a 0.2% gain.

February’s rise in retail sales was fairly broad based, led by a whopping 3.7% increase in sales at electronics and appliance stores, while purchases of food and beverage (1.3%), sporting goods (1.2%) and at general merchandise stores (1.0%) also experienced healthy increases. Despite falling, seasonally adjusted gasoline prices, sales at gasoline stations unexpectedly improved as well. Auto sales provided some offset, declining 2.0% in the month. Core sales, which exclude autos and gasoline, rose by 0.9%.

The overall rise in retail sales in February comes as a surprise, because weakness was expected due to the adverse weather throughout the Northeast and Midwest in the early part of the month. Last week’s Beige Book indicated that consumer spending “improved slightly” since January, but noted that activity was limited on account of severe snowstorms keeping shoppers out of stores.

Today’s report presents some upside risk to our forecast for first-quarter 2010 consumer expenditure of an annualized 2.4% and supports our view that consumer spending will be a significant contributor to overall economic growth in 2010 as improving labor-market conditions, stronger household balance sheets and low borrowing costs support moderately improving consumer demand. The expected increased strength in consumer spending should gradually begin to put upward pressure on prices, but the significant amount of economic slack generated during the recession will keep these pressures at bay in the near term. We continue to expect the Fed funds target to remain in its current 0% to 0.25% range until the fourth quarter of 2010.

RBC Financial Group
http://www.rbc.com

The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.