For a second year, harsh winter weather has kept Americans away from shopping centers, slowed home sales and weighed on U.S. economic growth.
Yet there may be little cause for concern. The steadily strengthening U.S. job market and low gas prices suggest that the slowdown will likely prove temporary – just as a winter-related slump did last year.
Retail sales fell 0.6 percent in February, the government said Thursday, the third straight drop. Americans cut back on car buying by the most in more than a year. Sales also fell at restaurants, home-improvement centers and electronics and appliance stores. The figures showed that consumers were slow to boost spending despite robust hiring in the past year and sharply lower gas prices.
But a separate report Thursday showed that far fewer people applied for unemployment benefits last week than in the previous week. The report offered evidence that layoffs remain low and that the job market and the economy are still solid.
The retail-sales report “doesn’t change our view that the economic recovery is strengthening,” said Paul Ashworth, chief U.S. economist at Capital Economics. “With the labor market on fire, we suspect that incomes, and eventually consumption too, will continue to grow at a healthy pace.”
Details in the spending report supported the notion that Americans are still willing to spend and that sales should rise along with temperatures. Spending in a category that includes online and catalogue retailers – which isn’t affected by weather – jumped 2.2 percent last month. It was the biggest gain in nearly a year.
And restaurant sales, which have been accelerating but are particularly weather-sensitive, fell by the largest amount in 13 months.
The report on applications for unemployment aid showed that the number of people seeking first-time benefits plunged 36,000 last week, to 289,000. The drop reversed an increase of 40,000 in the previous week. That jump was probably weather-related, given that low temperatures and snowstorms shut construction sites, closed schools and caused a wave of temporary layoffs.
Last week’s decline in applications confirmed that employers are still confident enough in the economy to hold on to their staffs. The number of people applying for unemployment benefits each week tends to reflect the pace of layoffs.
Joseph LaVorgna, an economist at Deutsche Bank, calculates that last month was the coldest since December 2000, measured by the number of days that households used an above-average amount of heat.
With spending weak, a strong dollar holding down U.S. exports, and oil and gas drillers cutting back on investment, economists are marking down their estimates for economic growth in the current January-March quarter.
Jesse Hurwitz, an economist at Barclays Capital, has downgraded his forecast to a tepid annual rate of between 1.5 percent and 1.8 percent. That compares with 2.2 percent annual growth in last year’s fourth quarter and is far below the blistering 4.8 percent pace last spring and summer.
Still, employers appear to be looking past the current soft spot. They added an average of 288,000 jobs a month from December through February, evidence that they regard any slower growth as temporary.
A similar trend occurred last year: The economy actually shrank in the first three months of 2014, largely because of brutal weather from the “polar vortex.” Even so, employers kept right on hiring, and the economy rebounded.
Nearly 3.3 million more Americans are earning paychecks compared with a year ago. Those additional jobs are lifting total household income – and spending power.
“The pace of both job and income growth … has picked up over the past several months, and there is simply nothing in other data to suggest consumers have gone into an all-out retreat,” said Richard Moody, chief economist at Regions Financial.
In fact, consumer spending jumped in the final three months of last year. Data released Wednesday showed that Americans spent more on services in the fourth quarter, including travel and health care, than the government had previously estimated. Consumer spending might have expanded at a 5 percent annual rate in the fourth quarter, according to economists at JPMorgan Chase. If so, that would be the most in 11 years.
“Consumers may have already spent a decent amount of the gas price windfall,” Michael Feroli, an economist at JPMorgan, said in a note to clients.
Gas prices plummeted by nearly half from June through January, averaging a five-year low of $2.03 a gallon nationwide earlier this year. Money saved at the gas pump should free up about $165 billion for consumers to spend on other goods, economists say.
But that’s only if the price remains low for the full year, Moody says. The average has since risen to $2.45.
Most analysts expect Americans to resume spending later this year. It can take three to six months for consumers to spend “found money,” economists say, from a tax rebate or savings from cheaper gas.