Tight Squeeze

Image source: New Africa - shutterstock

What's going on?

Data out on Wednesday showed that US retail sales rose by less than expected last month. Just don’t remind Americans how much they spent at the pump…

What does this mean?

Retail sales in the US rose by a worse-than-expected 0.3% in February from the month before, a massive drop from January’s 4.9% uptick. And while sales in bars and restaurants were up, the real bumper growth came from a 5.3% increase in gas sales – partly down to folk paying higher prices at the pump. In fact, if you strip out those mighty gas station sales, then total retail sales were actually down 0.2%. After all, sales in 6 of the 13 retail categories fell last month: online shopping was down sharply, and sales at grocery and electrical stores dropped too.

Why should I care?

For markets: Hikes are like buses…
Those slow sales figures might signal that Americans are tightening their purse strings as prices rise. That, then, might be why the Federal Reserve (the Fed) raised interest rates by 0.25% on Wednesday, which should help cool down 40-year high inflation. And while it’s the central bank’s first rate hike since 2018, there might not be long to wait until the next one: the Fed said it’s likely to hike rates another six times this year (tweet this).

The bigger picture: The worst is yet to come.
Households will really feel the pinch from those rate hikes, especially since inflation is also set to rise following Russia’s invasion of Ukraine. And if consumer spending – which makes up over two-thirds of the US economy – dips, economic growth could take a hit too. That might be why a survey out this week shows that economists predict there’s now a 33% chance of a recession in the next twelve months – up 10% from last month.

Originally posted as part of the Finimize daily email.

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