A post-holiday hangover clouded retail sales last month as resilient but weary consumers corrected their outsize January spending, holiday discounts faded and an air of caution returned, heightened by still high prices and rising interest rates. 

Retail and food service sales fell 4% in February compared to January, per the advance monthly retail sales report, released Wednesday by the U.S. Census Bureau, but rose by 5.4% from February 2022. Retail sales numbers are not adjusted for inflation, however, meaning some of the increases were due to higher prices, not higher sales. 

The February decline may well be the result of the market correcting itself after a strong holiday season. Though most sectors reported decreasing sales from January, almost all sectors reported higher sales from a year ago, pointing to steady spending and sales, despite the Fed’s maneuvering to daunt free-flowing wallets amid a strong labor market and competitive wages. However, all the indicators that preoccupy the Fed— high inflation, low unemployment, strong earnings — have begun to cool off. And new threats posed by the high-profile collapse of Silicon Valley Bank and Signature Bank could drag down spending in the coming months.

Christopher Low, chief economist at FHN Financials, said February numbers were nowhere near as action-packed as January’s, possibly because warmer temperatures pulled would-be February shopping into January and outsize growth pulled back in many sectors, pointing to a market adjustment between two extremes that many economists met with a matter-of-fact shrug. 

“I don’t think there’s anything in the February report that makes me think it’s a turning point,” he said. “But there are things going on in the world right now this week that suggest things could cool off for a bit.” 

Earlier this week and over the weekend, the Federal Reserve moved to shut down Silicon Valley Bank and Signature Bank, two banks in the tech and cryptocurrency space that were affected by bank runs after depositors were alarmed by the banks’ actions to liquidate loss-making assets. The events over the weekend caused shockwaves across the banking sector, spooking depositors and adding to fears about a risky financial market.

“If financial conditions really do tighten a lot in response to those two bank failures, then you know, the economic activities are going to have to slow down,” Low said. 

Sectors that reported standout retail sales in January all saw the biggest decreases in February — car dealerships saw their sales fall by 1.8% and restaurant, food establishment and bar sales dropped by 2.2% from the previous month. 

Vince P, branch manager at Le Cafe Coffee, a midtown-Manhattan coffee shop, said sales fell in February. That isn’t unusual for coffee shops, which often see lower foot traffic after the holiday season. But the business is also dealing with a longer-run problem: Corporate jobs — the beating heart of midtown Manhattan — left the district and haven’t returned in full force.

No factor of the business has been spared. Vince said sourcing beans, milk, syrup and packaging forced a 25 to 50 cent increase in all menu items, from the cappuccinos to the menu’s avocado-heavy sandwiches. Prices crept up at the same time that the lines outside the door evaporated. Vince cut staff, stopped seeing regulars and left the dessert counter a little lonelier than before when he cut pastries from the menu.

“Food business is rough if you have a certain item or something that people want,” he said. “I think everybody’s still feeling it.” 

While February retail numbers might be January’s outsize spending slowing down, stores like Vince’s are still taking stock of the bigger picture in a post-pandemic world. Since April 2021, retail sales have trended downward, growing at slower rates. In an inflationary market with low unemployment, even that growth has led the Fed to hike interest rates to curb spending. 


But the two bank failures that overshadowed much financial news this week — prompting the Fed to act swiftly and prevent more customer alarm — might lead the Fed to tread cautiously with its next interest rate hike announcement, scheduled for next week, said Lindsey Piegza, managing director and chief economist at Stifel Financial — which is what economists are now looking to to forecast what the quarter will bring next for consumers and retailers.

“Against the backdrop of increased uncertainty and volatility in the financial market, there’s no reason to push the envelope by offering an even larger increase,” she said. “This week’s events, more than anything, solidify an ongoing, historically normal size increase of 25 basis points as opposed to 50, rather than changing the conversation about whether they should pause altogether.”