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US consumers had already begun paring back spending last month, even before the efforts to slow the spread of the Covid-19 coronavirus began constricting regular economic activity according to the Commerce Departments data on February retail sales, released on Tuesday.

Key Takeaways

• Retail sales dropped 0.5% in February against projections for a 0.2% gain.
• Notably, the prior month’s retail sales data was revised higher, to +0.6% from +0.3%.
• Overall, retail spending in February was lackluster ahead of what we expect to be a turgid March.

Retail spending by the US consumer decreased 0.5% in February from the month before. While the prior month’s numbers for retail sales and sales excluding autos were both revised higher, the data set is still concerning for US market observers and investors as it suggests that one of the most vital drivers of the US economy in 2020 was already throttling back, before the restrictive conditions of Covid-19 containment efforts began took hold.

JUST IN: U.S. retail sales fell in February, indicating the main driver of the U.S. economy, consumer spending, had begun to slow even before coronavirus containment measures began rippling through the economy https://t.co/wW13mCNDEo pic.twitter.com/0oyQeATY5H

— Bloomberg Economics (@economics) March 17, 2020

Lower gas prices in America put pressure on the overall value of retail spending as expected, and auto dealers realized a 0.9% decline in sales. Accordingly, the least-reactive grouping of sales ex. food service, gas and auto sales, and building materials was essentially flat in February while analysts were looking for a pickup of 0.4%. Some analysts were expecting to see grocery stores lifted by the supply stockpiling that we saw reach it’s frenetic peak last week, but that category still reported a mild 0..1% drop in February.

While we can gather from this that components like grocery store spending will likely see some spiking in the March data, it will almost certainly be overshadowed by the effects of the cancellation of several major consumer conferences, the suspension of all major sports leagues, and the enforced closure of restaurants and bars in a growing number of major metro areas.

With this week’s scheduled FOMC meeting cancelled by the Fed’s emergency rate cut on Sunday evening, we’ll have to wait a bit to hear Jerome Powell & Co.’s reactions to this disappointing—but not entire unexpected—data. We know that the Fed had placed a lot of importance on a health US consumer in building its outlook that allowed for an end to the mid-cycle adjustment of rate cuts, so this would certainly shake the foundations of their models. Of course, it’s difficult to imagine that those structures are left standing at all after the developments of recent weeks as the American people band together (so to speak) in an effort to slow the progression of Covid-19.

Market Reaction

Gold spot prices, which had been languishing in the lows overnight, moved higher to $1487/oz on the release of February’s Retail Sales data. The yellow metal has continued to trend slightly higher although we’re seeing some volatility following the US market open as gold prices initially spikes higher before meeting some resistance just above $1500/oz. Silver prices are trying to build a foothold above $12.50. Major US stock indices have begun the session with a rebound higher, while Treasuries are seeing some more buying this morning while the Dollar index is up as well.