Retail Sales Fall 0.2% as Confidence Slips

In the latest sign that consumers are growing more cautious, retail sales fell in February as shoppers spent less on home furnishings and ate out less often, government figures revealed Tuesday.

Analysts said the decline reflects a continuing sluggishness in the economy and indicates that retailers could face an even rockier road ahead.

Retail sales fell 0.2% last month after surging in January, when shoppers flocked to stores to take advantage of deep discounts.

The February decline was the third in five months.

Analysts say the weaker numbers from the Commerce Department could provide another incentive for the Federal Reserve to cut interest rates further--probably half a percentage point--when it meets Tuesday.

While that could give the economy a boost, some analysts still see troubling signs ahead, partly because consumers have continued to pile up debt that will eventually force them to trim spending.

“The consumer credit problem is in my mind likely to be the catalyst going from a slowdown to a recession,” said Michael Niemira, vice president of Bank of Tokyo-Mitsubishi Ltd. “I think we could easily face a recession later this year.”

After basking in January from a consumer spending spree, home furnishings stores as well as restaurants and bars suffered the biggest slump last month.

Sluggish mall traffic could have contributed to the weak restaurant sales, analysts said.

Consumer demand for home furnishings and household appliances has weakened due to the slowing economy and a declining housing market. Consumers are becoming increasingly cautious about the types of purchases they make, delaying expenditures on big-ticket items.

But building and hardware stores bucked the trend, logging higher sales. Grocery store sales also edged up last month after being flat in January.

Some analysts remained cautiously optimistic, noting that news of the sales slump in February came as sales in January were revised upward to a hefty 1.3% increase, almost twice the earlier estimate. The numbers are adjusted for seasonal factors.

Indeed, the big revision in January’s numbers reduces the likelihood that the Fed would opt for a heftier interest-rate cut, UBS Warburg said in a research report released Tuesday.

Excluding auto sales, sales were down 0.3% compared with January and up 4.1% from February 2000.

“It’s a mixed bag,” said Kenneth Mayland, president of ClearView Economics, an economics research and consulting firm in Ohio. “When you look at the details, they didn’t look too terribly gloomy to me. . . . Things have cooled off a lot but it’s not like consumer spending is falling out of bed either.”

Overall retail sales in February were up 2.7% from the same month last year, but that growth rate is the slowest since May 1997.

Bank of Tokyo-Mitsubishi, which tracks 80 major retailers weekly, said Tuesday that--at the current pace--it expects sales at established stores to increase by only 2% to 3% this year, compared with a 4% increase in 2000 and a whopping 6.7% jump in 1999.

The sluggish sales figures are in line with slipping consumer confidence, which last month dropped to its lowest level in nearly five years. Despite some assurances from experts that the economy is holding up fairly well, consumers increasingly fear a recession.

A variety of factors are combining to fuel the uncertainty, including downward revisions of corporate earnings forecasts, mounting bad news from the technology sector, ongoing announcements of layoffs and rising energy prices.

Also putting consumers on edge is a tumbling stock market, which many people see as a sign of where the economy is heading.

“It’s viewed as a kind of benchmark for the economy,” Niemira said. “When it starts to head lower, it’s viewed as a signal that the economy is heading lower,” causing consumers to pull back on spending.

In a gut-wrenching example Monday, the blue-chip Dow Jones industrial average plunged 436.37 points and the technology-heavy Nasdaq slumped 129.40 points. Both the Dow and Nasdaq rebounded a bit Tuesday.

But the turmoil clearly has taken a toll. The falling stock market pushed down the net worth of U.S. households by 2% last year, the first such annual setback in 55 years, the Federal Reserve reported Tuesday. Americans’ total net worth was $41.42 trillion at the end of last year, a drop of $841.5 billion from the end of 1999.

In the meantime, consumers have continued to borrow heavily. Consumer credit grew at a 12.5% annual rate in January, nearly double the pace in December, according to the Federal Reserve. The pickup reflected faster growth in both revolving and nonrevolving accounts.

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Retail Sales

In billions of dollars, seasonally adjusted:

February: $274.5 billion

Source: Commerce Department