por admin » Mié Mar 15, 2023 10:32 pm
Economy Shows Signs of Cooling as Bank Troubles Spread
Retail spending fell and price pressures eased in February, but Fed’s focus has turned to financial system
By Harriet TorryFollow
, Sarah NassauerFollow
and Nick TimiraosFollow
Updated March 15, 2023 at 5:15 pm ET
A drop in retail sales and easing price pressures in February offered preliminary signs of a cooling economy as the spread of financial turmoil on Wall Street called into question whether the Federal Reserve would continue raising interest rates.
Fed officials are set to meet March 21-22. The central bank has raised interest rates by 4.5 percentage points over the past year—the most rapid run-up since the early 1980s—as it tries to cool the economy and bring down high inflation.
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“At this point I would imagine the [Fed’s] decision next week will mainly be a function of how much turmoil remains in the banking sector and financial markets,” said Stephen Stanley, chief U.S. Economist at Santander U.S. Capital Markets.
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Financial markets slid on Wednesday as troubles at U.S. regional banks spread. The Dow Jones Industrial Average fell 280.83 points or 0.87%. Yields plunged on Treasurys in the U.S., and Credit Suisse Group AG shares fell more than 25% in Europe. Investors in interest-rate futures markets saw a greater chance that the Fed won’t increase rates at their next meeting.
The market developments overshadowed the latest economic readings. Spending fell at stores, online and in restaurants by a seasonally adjusted 0.4% in February, the Commerce Department said Wednesday, following a 3.2% jump in January.
A separate report Wednesday showed a measure of supplier inflation cooled last month. The producer-price index, which generally reflects supply conditions across the economy, fell 0.1% in February from the prior month, the Labor Department said. On a 12-month basis, producer prices rose 4.6% in February, slowing from January’s downwardly revised 5.7% gain.
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The reports show some cooling after the economy displayed surprising vigor to start the year. Employers added more than 800,000 jobs during the first two months of the year, and consumer inflation, 6% in February, is well above the Fed’s 2% target for annual price increases.
Retail sales, which are adjusted for seasonality but not inflation, have been volatile of late. They fell during the holiday season before a strong gain in January and retreat last month. Over the past year retail sales have advanced 5.4%.
As inflation climbs in the U.S., rising food and energy costs have pushed the nation’s most popular price index to its highest level in four decades. WSJ’s Gwynn Guilford explains how the consumer-price index works and what it can tell you about inflation. Illustration: Jacob Reynolds
In February, consumers spent less at restaurants and department stores. Spending also eased last month on interest-rate sensitive items, such as vehicles and furniture. Excluding often volatile auto sales, overall retail purchases decreased 0.1% in February.
Higher interest rates are showing signs of weighing on other parts of the economy. Orders for machinery, appliances and other manufactured goods have eased, and home sales have fallen for 12 straight months.
Last month, sales at gasoline stations declined as fuel prices ticked down to $3.34 a gallon in the final week of February from $3.49 in the final week of January, according to the U.S. Energy Information Administration.
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Purchases of often essential items at grocery stores and pharmacies rose in February, the Commerce Department said.
After upward revisions to January spending and February’s only modest decline, S&P Global Market Intelligence raised its forecast for first-quarter economic growth to 0.2% annual rate, from an earlier estimate for a quarterly contraction.
A Business Roundtable survey of executives at large companies, released Wednesday, projected 1.4% growth for the full year. That would be slightly faster than last year’s rate of growth, but below the pace recorded in the several years before the pandemic took hold. A greater share of top executives said they expect sales to ease in the next six months compared with the prior quarter’s survey. The latest survey closed March 8, before Silicon Valley Bank failed.
The survey “reflects continued caution resulting from high inflation and the policy measures the Federal Reserve is implementing to bring it under control,” said General Motors Co. Chief Executive Mary Barra, who leads the roundtable.
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Economists at Morgan Stanley expect retail sales to weaken in the months ahead. They noted a pandemic-era food stamp program recently expired, as “the labor market continues to cool, and households become more cautious spenders, drawing down less and less on their excess savings and choosing to allocate greater wallet share towards services over goods.”
Jerry Dawson, 72 years old, of Hernando, Fla., says his spending is somewhat curtailed. He says he sticks to essentials such as new tires for his wife’s car and a new smartphone to replace one that broke.
“I think the economy is probably worse than most people are acknowledging,” he said, pointing to the recent bank failures. Nonetheless, he said he welcomes cost decreases on some items that rose sharply in price since the pandemic, such as frozen pizza at the grocery store.
Many retailers gave a cautious view of the current year in recent earnings reports, with some predicting ongoing inflationary pressure on shoppers that will keep spending unpredictable.
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Department stores and apparel retailers have reported weaker figures because of an inventory glut and weaker demand for clothes and accessories.
Macy’s Inc. said that sales could fall as much as 3% this year and wouldn’t start growing again until 2024, as consumers across all income levels remain under pressure, said Chief Executive Jeff Gennette.
Retailers that lean on food for a large percentage of their revenue, such as Walmart Inc., have fared better. The country’s largest retailer by revenue said it expects U.S. comparable sales to increase by between 2% and 2.5% for the full year, excluding fuel sales.
“Customers are still spending money,” said Walmart CEO Doug McMillon. “It’s obviously not as clear to us what the back half of the year looks like,” he said last month.
Gwynn Guilford contributed to this article.