Moderate Growth Amid Trade Tensions and Federal Job Cuts
WASHINGTON (Reuters) – U.S. retail sales bounced back in February, indicating moderate economic growth in the first quarter. However, ongoing tariffs, federal job cuts, and declining consumer sentiment pose risks to sustained spending.
According to data from the Commerce Department’s Census Bureau, retail sales rose 0.2% last month after a revised 1.2% decline in January. The increase was lower than the 0.6% forecast by economists polled by Reuters, signaling a weaker-than-expected recovery.
Key Retail Sales Insights
✔️ Retail sales rose 0.2% in February, following a 1.2% drop in January
✔️ Economists had forecast a stronger 0.6% rebound
✔️ Core retail sales (excluding key volatile sectors) jumped 1.0%
✔️ Consumer sentiment hit a 2.5-year low in March
January’s sharp decline followed strong fourth-quarter gains, severe winter storms, and California wildfires, which disrupted economic activity. Despite February’s modest rebound, analysts remain cautious about future growth prospects.
Economic Headwinds Impacting Consumer Spending
📉 Key Challenges Facing the U.S. Economy:
- Trade War & Inflation Risks: President Trump’s tariff policies continue to drive inflation concerns and raise costs for businesses and consumers.
- Federal Job Cuts: Mass layoffs of government employees are affecting household incomes and spending, especially in regions with high public-sector employment.
- Stock Market Volatility: A recent selloff in equities is reducing discretionary spending, particularly among wealthier consumers.
- Rising Food Prices: Higher grocery costs could pressure low-income households, curbing their purchasing power.
Treasury Secretary Sees ‘Detox Period’ for Economy
📊 Treasury Secretary Scott Bessent recently stated that the economy is shifting away from public-sector-driven growth toward private-sector expansion. However, he acknowledged this could create a temporary slowdown as businesses and consumers adjust.
🗣️ “The economy might slow as it transitions from public spending towards more private spending, calling it a ‘detox period.’” – Scott Bessent, U.S. Treasury Secretary
Meanwhile, Bank of America card data signaled softening discretionary spending, particularly in restaurants across the Washington, D.C. metro area, which includes parts of Maryland and Virginia. This suggests that government job losses are already impacting local economies.
GDP Growth Projections: Slowdown Expected
With consumer spending cooling, analysts expect GDP growth to weaken in the first quarter.
📊 Key GDP Forecasts:
✔️ Atlanta Federal Reserve projects a 2.4% economic contraction
✔️ Most economists predict 1.2% growth in Q1 2025
✔️ Q4 2024 GDP growth stood at 2.3%
Core retail sales—which exclude automobiles, gasoline, building materials, and food services—rose 1.0% in February after a 1.0% decline in January. While this aligns closely with consumer spending trends, economists warn that the first-quarter slowdown could be significant compared to the strong 4.2% annualized growth seen in Q4 2024.
Looking Ahead: What’s Next for U.S. Retail and Economic Growth?
🔍 Key Areas to Watch:
✔️ Federal Reserve Policy: The Fed’s stance on interest rates could influence consumer spending and borrowing costs.
✔️ Inflation Trends: Rising prices may further strain household budgets and corporate profit margins.
✔️ Government Policy & Job Market: Continued federal job cuts and tariff policies could slow economic activity.
✔️ Stock Market Stability: Market volatility could impact consumer confidence and wealth-driven spending.
As the economy navigates these uncertainties, investors, businesses, and policymakers will closely monitor consumer spending trends, labor market conditions, and trade developments.
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