Key Points

  • Data released by the U.S. Commerce Department on Monday showed that retail sales rose 0.2% month-over-month in February, below market expectations, while January's figure was revised down to a decline of 1.2%. This weak performance has heightened concerns that the tariff war and other policy adjustments by the Trump administration could curb consumer spending and weigh on economic growth.
  • Among the 13 retail categories, sales declined in seven, including autos, electronics, clothing, gasoline, and restaurant and bar spending. Commerce Department data showed that online spending and spending on health products increased.
  • Douglas Holtz-Eakin, president of the American Action Forum, said Monday: "The Trump administration's erratic tariff policies have undoubtedly damaged the near-term economic outlook, partly due to the policies themselves and partly due to the enormous uncertainty surrounding the scale, scope, and timing of the tariffs." The comment was made before the retail data was released, with regard to consumer confidence.

In-Depth Analysis

Nathan Sheets, chief global economist at Citigroup, noted that the tariffs imposed by President Trump last month and other planned tariffs could shave about 0.5 percentage points off economic growth this year by undermining consumer and investor confidence.

"Trump's trade policies and his broader policy mix are creating significant uncertainty for the economy. We frequently hear this concern from clients at Citi, including CEOs," Sheets said Monday during a webcast hosted by the Economic Club of New York.

Retail sales account for only about one-third of total consumer spending. However, the decline in retail sales reported Monday aligns with the 0.5% drop in overall consumer spending in January. That decline occurred before Trump announced sweeping tariffs on Canada, Mexico, China, the European Union, and other trading partners.

"The 'animal spirits' effect from Trump's inauguration on January 20 was initially clearly positive, supporting market confidence and so on. But due to this uncertainty, we have now turned negative," Sheets said.

Weak retail sales prompted the Atlanta Fed to downgrade its economic outlook on Monday. The regional Fed bank now expects first-quarter gross domestic product (GDP) to contract at an annualized rate of 2.1%. As of March 7, it had forecast a 1.6% contraction for the first quarter.

On Monday, data from two other areas of the economy also flashed warning signs.

"Business activity in New York State declined significantly in March," the New York Fed said. Its business conditions index fell 26 points to -20.0, and "optimism about the outlook weakened noticeably for the second consecutive month."

At the National Association of Home Builders (NAHB), the index measuring confidence in the market for newly built single-family homes fell 3 points this month to a seven-month low. The association said Monday that builders continue to face rising building material costs exacerbated by tariff issues, as well as supply-side challenges such as labor and land shortages.

"Builders continue to face high building material costs, which are exacerbated by tariff issues, as well as other supply-side challenges such as labor shortages and lot shortages," NAHB Chairman Buddy Hughes said in a statement.

These data releases follow reports last week showing weakening consumer confidence (University of Michigan data) and deteriorating small business outlook (National Federation of Independent Business data).