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U.S. retail sales fall
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March 13, 2001: 10:22 a.m. ET
February down 0.2%, bucking forecasts of modest gain; January revised up
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NEW YORK (CNNfn) - Retail sales fell in February for the first time in three months, the U.S. government reported Tuesday -- a new sign of a slowing economy and a possible harbinger of further Federal Reserve interest rate cuts.
Retail sales fell 0.2 percent in February to $274.5 billion, the Commerce Department said, in contrast to Wall Street forecasts for a 0.3 percent increase. That compares with an upwardly revised 1.3 percent increase in January, when consumers took advantage of big sales held to empty holiday and year-end inventory.
Excluding autos, sales fell 0.3 percent, also below forecasts for a small gain.
Retailers have been struggling in the past year with the slowing economy, which has eroded consumer confidence and spending. High energy prices and severe weather also contributed to sluggish sales during the holiday season, a period in which retailers often make more than 50 percent of their year's profit.
During the holiday season, many retailers slashed prices in order to boost store traffic. The tactic worked, but at the expense of gross margins, which hurt profit.
Merrill Lynch retail analyst Peter Caruso said in a research note Tuesday that the slowdown in retail sales growth is now over, and that he expects stabilization in the near future.
Retail sales are closely watched as a sign of consumer demand, since consumer spending fuels two-thirds of the U.S. economy.
The Federal Reserve cut interest rates twice in January in a bid to give a boost to the slowing economy and prevent a recession. The retail sales report comes a week before the Fed meets to consider whether another rate cut is warranted.
"The headline number came in a lot weaker than expected, but when you comb through all the revisions, you come down in line with expectations," Jeff Palma, an economist with UBS Warburg told Reuters Tuesday. "The momentum in February is clearly weaker."
Palma said he expects a one-half percentage point cut at the next Fed meeting March 20, adding that "continued weakness in equities and a broadening out into some of the other markets" could boost the chances for a three-quarters of percentage point reduction.
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The report took on added importance to investors Tuesday, a day after the Nasdaq and Dow Jones industrial average posted record declines.
On Monday, the Nasdaq lost 129.41 points, taking it below 2,000 for the first time in more than two years. The Dow Jones industrial average fell 436.37 points, handing it its fifth-worst point loss ever.
The Nasdaq rose and the Dow slipped in afternoon trading after the data were released Tuesday.
Sales of automobiles, washing machines and other durable goods were flat with January and 1.1 percent below year-earlier levels. Building materials sales were up 2.9 percent from the prior year.
Drug store sales increased 13.3 percent from a year earlier, and apparel sales were up 5.8 percent year-to-year.
The nation's retailers individually reported their February sales data, showing modest increases. That was in line with analysts' expectations for a month typically seen as a transitional period before the full lines of spring merchandise are offered. 
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