U.S. February retail sales rose 0.3% and January’s results were revised down a tick to -0.3%. Economists are divided over what this means for monetary policy.

Analysts were calling for a 1% increase on strong gains in motor vehicle and chain store sales, so these numbers were certainly disappointing.

Bank of Montreal economists note that weakness was evident in auto and chain store sales, and in a number of other components. “However, in all cases, these declines followed strong increases in January. As well, these declines were more than offset by strong increases in sales at furniture stores (1.5%) and electronic and appliance stores (1.1%). The strength in these latter two components reflects the continuing strength in the housing market.”

TD Bank economists say that what is most surprising, “is that the moderation has not been more pronounced. The February retail data shows that sales of interest-rate sensitive items are holding up surprisingly well. Outside of the interest-rate sensitive areas, the retail sales performance has been more mixed. However, it is important to remember that the retail data are expressed in value terms, which does not remove price effects.”

BMO Nesbitt Burns says that the trend remains difficult to read. “Total sales have dropped more than 2.5% from an October peak. Ex autos sales, however, are up 2.1% over that span, a very material gain since inflation is low/non-existent in the goods sector. We believe the stronger ex autos trend is the one to follow. However, performance has varied substantially by segment, making a closer look vital for equity market implications. For example, furniture and restaurant sales were strong, while auto part sales were flat.”

“All told, the retail report for February is nothing to get terribly excited about, but it does suggest that the moderation in consumer spending is proving to be more gradual than many expected a few months ago,” says TD. “It is important to note, however, that while U.S. consumers may be catching their breath, a more gradual pace of expenditure will not derail the U.S. economic recovery.”

CIBC World Markets says, “While there’s little doubt the economy is recovering, the strength of the upturn remains an open question. A softer-paced consumer would reduce the odds of a Fed rate hike before mid-year.” It also predicts that today’s report reduces the likelihood that the Fed will shift its risk assessment from weakness to neutral at next week’s meeting.

BMO Nesbitt Burns disagrees, noting, “While the results of the retail sales report were weaker than expected, the trend in sales is well within the range that will keep the Fed thinking about moving to a neutral policy stance.”