U.S. retail sales rebounded modestly last month, while producer price inflation ticked higher, suggesting the Federal Reserve's path to early-summer rate cuts remains fraught with risks tied to the resilient U.S. economy.
Headline retail sales rose 0.6% from January to a collective total of $700.7 billion, the Commerce Department said Thursday, coming in just under economists' forecasts of a 0.8% gain. The January total was revised upward, to a decline of -0.5% from the original estimate of -0.8%
The closely tracked control-group number rose 0.4% on the month, following a similar gain in January. This figure, which excludes autos, building materials, office supplies, gas-station sales and tobacco, feeds into the government's GDP calculations.
Gasoline-station sales were up 0.9%, the release indicated, after Energy Department data showed the national average rose 4% from January to $3.328 per gallon.
A separate report showed factory inflation spiked sharply higher, to an annual rate of 1.6%, a tally well ahead of Wall Street's 1.1% forecast.
Data published earlier this week showed that headline consumer inflation ticked modestly higher, to an annual rate of 3.2%, while so-called core inflation, which strips out volatile components like food and energy, eased to 3.8%.
Related: February inflation surprises with modest uptick, but core pressures ease
"In a way, today was the past month in microcosm: sticky inflation combined with signs of softness elsewhere in the economy," said Chris Larkin, managing director for trading and investing at E*Trade from Morgan Stanley. "Retail sales may have come in below estimates, but the PPI was even more of an upside surprise than Tuesday’s CPI."
"The questions now are, 'will traders rethink how soon the Fed will cuts rates, and will that slow down the stock market rally in any meaningful way?'," he added "So far, the market has shrugged off concerns about stubborn inflation and a cautious Fed."
U.S. stocks pared earlier gains following the data release, with futures tied to the S&P 500 indicating an opening bell gain of 10 points, while the Dow was called 145 points higher. The Nasdaq, meanwhile, is looking at a 45 point gain.
Benchmark 10-year Treasury note yields edged 2 basis points higher to 4.208% while two-year notes were little-changed at 4.626%.
CME Group's FedWatch indicates the Fed will hold its benchmark rate steady at between 5.25% and 5.5% next week in Washington, with the odds of a June rate cut now pegged at around 59.2%.
The #PPI troughed 8 months ago, yet the economic consensus and even the #Fed believes #inflation has been conquered. Forget the forecasts for multiple rate cuts. pic.twitter.com/ZNIiKLWdFA
— Richard Bernstein Advisors (@RBAdvisors) March 14, 2024
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