The US Commerce Department reported in February that US retail sales fell moderately, likely the result of the sharp rise in January, but continued momentum indicates that the economy still expanded in the first quarter of 2023 despite higher borrowing costs.
The report made analysts upgrade their gross domestic product growth estimates after data showing solid job growth in February.
The outlook for the Federal Reserve's interest rate decision due soon after the collapse of two US banks has become more uncertain.
Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said American consumers still seem to be spending at a rate that will make the Fed uncomfortable with the inflation outlook.
Retail sales fell by 0.4 percent in February, compared to the forecast by economists polled by Reuters of a 0.3 percent fall, with estimates ranging from a 1.0 percent decline to a 0.5 percent increase.
Retail sales are mostly goods and are not adjusted for inflation.
A tight labor market is propped up spending, as it is generating higher wage growth. In January, there were 1.9 job openings for every unemployed person, and consumers have accumulated high levels of savings during the COVID-19 epidemic.
The Federal Reserve Bank has raised its overnight interest rate by 450 basis points from near-zero to 4.50 percent to 4.75 percent since March.
Recent bank failures and the spike in financial market stress are complicating the task of policymakers to read the economic tea leaves, according to Oren Klachkin, a professor at Oxford Economics in New York, as reported by Reuters.
Services spending was higher than goods spending, according to an analysis of Bank of America Securities card data in February, suggesting that the rotation of spending back to services helped to undercut retail sales in February.