LIVE MARKETS-Gloomy Monday: Retail sales, NAHB, Empire State

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GLOOMY MONDAY: RETAIL SALES, NAHB, EMPIRE STATE

Investors began the week with a sweet and sour mix of U.S. data, showing weakness in retail sales, homebuilder sentiment and New York factory activity, with some evidence of some underlying consumer strength.

The could-have-been-worse data appeared to at least nudge the needle regarding Fed rate cut expectations this year.

Receipts at U.S. retailers USRSL=ECI increased in February by a mere 0.2%, falling well short of the 0.6% consensus.

The downward revision of January's slump, to -1.2% from -0.9% was salt in the wound.

Digging through the rubble, spending at the pump dropped 0.1%, food and drink services slid 1.5%, beleaguered department store saw a 1.7% drop and motor vehicles skidded 0.4% lower.

Excluding autos and gas, retail sales actually gained 0.5%.

Non-store retailers, which includes online shopping, surged 2.4%, reversing January's 2.4% drop.

The "control" figure, which excludes autos, gasoline, building supplies and food services - and is most closely correlated with the personal expenditures element of GDP - increased 1.0%, breezing past the 0.3% gain analysts expected.

"Consumer spending has been the driver of U.S. economic growth for the last ten quarters," says Carl Weinberg, chief economist at High Frequency Economics. "Falling volumes of consumer spending take the wind out of the sails of the economy.

"This report will encourage Fed rate cut expectations," Weinberg adds. "Although no one seriously expects the Fed to cut rates on Wednesday amidst the chaos of economic policy."

Turning to the housing market, the mood among homebuilders has grown unexpectedly dimmer this month.

The National Association of Homebuilders' USNAHB=ECI housing index shaved off three points to print at 39, the lowest since August, when mortgage rates were soaring over 7%.

An NAHB reading south of 50 indicates pessimism in the sector.

"Construction firms are facing added cost pressures from tariffs," writes NAHB chief economist Robert Dietz. "(The report) reveals that builders estimate a typical cost effect from recent tariff actions at $9,200 per home. Uncertainty on policy is also having a negative impact on home buyers and development decisions."

Switching gears, New York State factory activity has fallen into a much steeper contraction this month than economists anticipated.

The New York Fed's Empire State index USEMPM=ECI tumbled 25.7 points to -20.0, much more dire than the -1.5 consensus and the lowest reading in more than a year.

A negative Empire State reading indicates monthly contraction.

A plunge in the new orders component, to -14.9 from 11.4, a an accelerated deterioration of employment and dimming 6-months expectations were behind the decline.

Prices paid, an inflation predictor, heated up 4.7 points to 44.9, even amid plunging demand, raising the stagflation specter.

(Stephen Culp)

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