U.S. Retail Sales Unexpectedly Declined in February

U.S. Retail Sales Unexpectedly Declined in February

March 13 (Bloomberg) -- Retail sales in the U.S. unexpectedly fell in February, indicating that declines in payrolls and home values and a surge in energy costs have tipped the economy into a recession.

Purchases dropped 0.6 percent last month, led by declines at auto dealers and restaurants, after a 0.4 percent gain in January, the Commerce Department said. Purchases excluding autos declined 0.2 percent.

The biggest job losses in five years and record fuel costs are eroding consumer confidence and spending, which accounts for more than two thirds of the economy. The report may prompt more economists to join a growing number that includes Lehman Brothers Holdings Inc. and JPMorgan Chase & Co. predicting a recession is at hand as Americans cut back.

``It's no wonder the consumer stopped spending,'' said Chris Rupkey, senior financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York. ``Confidence is at recession- type lows.''

The dollar remained weaker against the yen after the report. Separately, the Labor Department said today that the number of Americans continuing to collect unemployment benefits climbed to the highest level in 2 1/2 years. First-time claims were unchanged at 353,000 last week.

Economists' Forecasts

A Bloomberg survey of 79 economists forecast total retail sales would rise 0.2 percent, following an originally reported 0.3 percent gain the prior month. Sales excluding autos were also forecast to rise 0.2 percent.

Today's report showed sales at automobile dealerships and parts stores fell 1.9 percent, the most since June.

Industry figures earlier this month showed cars and light trucks sold at an annual pace of 15.3 million vehicles in February, little changed from a three-year low of 15.2 million reached in January.

The report showed how the housing slump is filtering through the economy. Purchases of furniture, electronics and building materials all dropped.

The rising price of gasoline, which this week reached a record, is prompting Americans to cut back. Purchases at restaurants and bars fell 0.4 percent in February, the most since January 2007.

Consumers are even cutting back on gasoline. Receipts at filling stations fell 1 percent last month, the most since August.

GDP Calculation

Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product, sales were unchanged after a 0.3 percent increase the prior month. The government uses data from other sources to calculate the contribution from the three categories excluded.

Wealthy consumers have become ``more cautious,'' Burt Tansky, chief executive at Dallas-based retailer Neiman Marcus Group Inc. said on a conference call last week. Less-affluent shoppers have ``pulled back somewhat in response to concerns about the U.S. economy and stock and housing markets.''

Consumer spending may grow at a 0.5 percent pace in the first quarter, the slowest pace since the 1991 recession according to the median estimate of economists surveyed this month by Bloomberg News.

The odds the economy would slide into a recession this year were even, according to the median estimate in a Bloomberg News survey this month, the same as in the February poll. The economy lost 63,000 jobs in February, the most since 2003, the government said this month.

Wealth Effect

Rising fuel costs and fewer jobs couldn't come at a worse time for Americans, who are also facing declining property and stock prices. The losses leave Americans feeling less wealthy and even less likely to spend.

``Households are reacting to the loss in wealth by cutting back on spending, and lenders are reacting to the loss in their investments by cutting back on credit,'' Kevin Logan, a senior market economist at Dresdner Kleinwort in New York, said before the report. ``Falling home prices are taking the economy into a recession.''

Investors project the Fed will keep lowering the benchmark interest rate to revive the economy. The central bank is likely to cut the rate by three-quarters of a point, to 2.25 percent, on or before its March 18 meeting, according to trading in the futures market.

A poll of Americans indicates other government efforts to revive the economy may not work.

The Congress and the administration passed a $168 billion stimulus package last month. Still, a Bloomberg/Los Angeles Times survey taken from Feb. 21 to Feb. 25 showed most Americans plan to save rather than spend the plan's tax rebates, indicating it may give less of a boost than intended.

BLOOMBERG