U.S. Preview: Retail Sales to Suffer as Jobless, Fearful Americans Tighten Belts (Repeat)

“Headwinds are amazingly strong against the consumer with an increasing unemployment rate that drove consumer confidence down to a new all-time low in February,” said Ellen Beeson Zentner, economist with Bank of Tokyo-Mitsubishi UFJ.

Economists expect February retail sales to drop 0.5%, against the 1.0% gain reported in January. Sales ex-autos are expected to fall 0.1% against a 0.9% increase the month prior. The Bank of Tokyo-Mitsubishi is expecting sales excluding autos and gas to gain 0.4% for the month.

January’s jump in headline sales was a surprise, especially considering the preceding six months all saw negative reads - a trend not seen since the inception of the report.

Stephen Gallo, strategist with Schneider Foreign Exchange, said the boost reflected sharp post-holiday discounting, as well as the effects of low petrol prices throughout the fourth quarter, which attracted consumer spending.

“We don’t expect any of these positive effects to have persisted in February,” he said. Gallo is forecasting a 1.1% month-over-month drop.

Several consumer-related reports released in the United States indicate February saw Americans avoiding the lure of shopping malls.

The International Council of Shopping Centers, for instance, reported U.S. chain store sales dropped 0.1% in the month.

Meanwhile, the Conference Board’s consumer confidence index fell to a record low that month, the average price for a gallon of gas climbed around 4 cents, and the U.S. economy lost 651,000 jobs.

Thursday’s report will reveal “the true misery of the U.S. household sector, battered by falling wages growth, falling employment and employment prospects, falling house prices and the falling value of investments, and a need to repair balance sheets,” said Rob Carnell, economist with ING.

More optimistically, Joe LaVorgna, economist with Deutsche Bank Securities, said he thinks the worst is over for retail sales in the United States, although a recovery is still a few months off. He said the particularly staggering drops in retail sales over the course of this recession can be linked to consumer inaccessibility to credit.

“This highlights the critical need for the rapid implementation and aggressive use of policies, such as the TALF [Term Asset Backed Securities Loan Facility], aimed at revitalizing the consumer credit markets,” he said.

The U.S. government’s TALF will spend up to $1 trillion to support consumer and business loans.