Economy Watch: Americans Hit the Stores in February
- Mar 14, 2012
Retailers had a good month in February as Americans were out shopping in force, driving total retail sales up 1.1 percent, which was the highest uptick in five months, according to the U.S. Department of Commerce. The increase came despite, and not because of, the rising price of gasoline. The increase in retail sales in January was revised upward to 0.6 percent.
People took to showrooms in February to buy cars, but that wasn’t the only thing spurring the overall increase. Even without motor vehicle sales, retail sales were up 0.9 percent. Take out autos and gas, and the increase was 0.6 percent, since gas accounted for 11.5 percent of all retail sales in February.
Since consumer spending is such an important part of the U.S. economy—70 percent is the usual rule-of-thumb estimate of its part of the entire pie—the recent monthly growth and the retroactive revisions might mean that the forecasts of first quarter 2012 GDP growth will inch upward. Economists at Goldman Sachs, for instance, now say that GDP growth will be an annualized 2 percent for the quarter, rather than 1.8 percent. Also, when final retail sales revisions are out, the government might revise fourth quarter 2011 growth to as much as 3.5 percent, instead of where it stands now, 3 percent.
No higher interest rates, says FOMC
In its own reserved way, the Federal Open Market Committee offered a fair amount of optimism during its meeting in January, according to minutes released on Tuesday. The central bank said that the U.S. economy is expanding “moderately,” which certainly is better than “sluggishly” or “tepidly” or “like its shot in the foot,” though those relatively colorful terms are probably not in a central banker’s lexicon.
In any case, the FOMC said in its statement that the “labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance.” Alas, “The housing sector remains depressed.” The FOMC also asserted that “inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately,” which is spoken like central bankers who never buy their own gas.
The economy might be better, but as far as the FOMC is concerned, not better enough to warrant an increase in interest rates. The target range for federal funds is standing pat at 0 percent to 0.25 percent, where it’s been since the darkest days of the Panic of 2008.
Most banks pass stress tests
The Fed also reported on Tuesday, two days ahead of schedule, the stress tests it gave to 19 large banks recently. The good news: 15 of them passed, meaning that have enough capital on hand to weather a scary revisit of the weird days of late 2008. The bad news: four of them failed. The four were Citigroup, MetLife, SunTrust and Ally Financial, who, to judge by their reactions in the form of statements, are not happy about the results, and want to take the test again. By contrast, a number of banks that passed showed their good cheer by announcing higher dividends.
Wall Street reacted in a perfectly Pavlovian way on Tuesday, rising sharply with the good news about retail sales and the hopeful message from the Fed. The Dow Jones Industrial Average gained a sizable 217.97 points, or 1.68 percent (and sailing past 13,000), while the S&P 500 was up 1.81 percent and the Nasdaq advanced 1.88 percent.