US retail sales rose 0.6% in February from the prior month, according to data released by the Commerce Department on April 1. The figure beat economist forecasts of a 0.4% increase, as polled by data firm FactSet, and reversed January’s downwardly revised decline of 0.1%. The February result ended three consecutive months of falling retail sales.
Retail sales figures are adjusted for seasonal swings but not for inflation. The February report was released several weeks later than usual due to last year’s government shutdown.
Sales climbed across nearly every retail category in February. Department stores recorded the sharpest increase at 3%, followed by personal care shops at 2.3% and clothing retailers at 2%. The only categories to post declines were grocery stores and furniture retailers, each falling 1%.
A closely watched measure that strips out volatile categories including building materials, automobiles, and gasoline rose 0.45% in February, above the 0.3% increase economists had expected. This figure, known as the control group, is used as a gauge of underlying consumer demand in the economy.
Consumer spending accounts for roughly two-thirds of the US economy. Economists monitor spending data closely as an indicator of broader economic health. In recent years, spending trends have tracked more closely with layoff rates than with consumer sentiment surveys. New applications for unemployment benefits remain at historically low levels, and layoffs have not increased beyond normal ranges despite slower job growth over the past year.
Iran War and Rising Energy Prices Cloud the US Consumer Spending Outlook
While the February retail sales data was stronger than expected, economists noted it does not yet reflect conditions that emerged in the weeks that followed. The US-Israeli military conflict with Iran entered its fifth week at the time of the report’s release. The Strait of Hormuz, through which roughly one-fifth of the world’s oil supply passes, has been closed for weeks as a result of the conflict.
Vivian Chen, financial market economist at Nationwide, said in a release that the February data predates the recent escalation in the Middle East and does not capture any potential drag from higher energy prices, financial market volatility, or heightened geopolitical uncertainty.
The closure of the strait has driven energy prices sharply higher. WTI crude, the US benchmark, settled at $102.88 per barrel earlier in the week, its highest closing level since July 2022. The average price of a gallon of gasoline in the United States crossed $4 for the first time since 2022 on Tuesday. Prices for plastic and fertilizer have also risen in recent weeks.
President Donald Trump said the conflict could end within two to three weeks and was scheduled to deliver an address to the nation on April 1. Trump has also raised the possibility of ending the war without reopening the Strait of Hormuz, a scenario economists say would do little to ease the global energy supply squeeze.
Consumer Sentiment and the March Jobs Report in Focus
The Bureau of Labor Statistics was scheduled to release the March jobs report on Friday, covering job growth, wage gains, and the unemployment rate. At the start of the year, economists broadly projected the labor market would remain stable, though in a weaker state than prior years.
Consumer sentiment has declined alongside the escalating conflict. The University of Michigan’s latest consumer survey showed sentiment fell 6% in March to its lowest point since December, with declines recorded across all income levels and political affiliations. Survey director Joanne Hsu noted in a release that declines were seen across age groups and political parties.
A CNN poll conducted by SSRS and released April 1 found that roughly two-thirds of Americans said the Trump administration’s policies had worsened economic conditions in the country, an increase of 10 percentage points since January.
The February retail sales report captures a period before the Iran conflict intensified and before the oil price spike took hold. Economists will be watching March spending data and the upcoming jobs report for a clearer picture of how American consumers are responding to the changed economic environment.
