KEY DATA: Sales: -0.2%; Gasoline: -4.4%; “Control”: 0%/ PPI: -0.2%; Finished Consumer Goods less Food and Energy: +0.3%; Services: 0%

IN A NUTSHELL: “As the latest FOMC meeting starts, the members are faced with a consumer that is far from exuberant and prices that are well contained.”

WHAT IT MEANS: The Fed members are meeting to figure out what to do next, if anything, and today’s numbers are no help. Not surprisingly, retail sales fell in February. Lower gasoline prices and a modest decline in vehicle sales were major factors in the drop. But there were also declines in furniture, electronics and appliances, department stores and supermarkets. We even bought less online. The only strong areas were clothing, building supplies and restaurants. Eating out is once again in. So-called “control group” sales, which exclude autos, gasoline, building materials and food services, were flat. Since this measure best mirrors the GDP consumption number, it points to less than stellar household spending this quarter, especially since last month’s control group gains was revised downward sharply.

On the inflation front, wholesale prices declined, as usual. With another sharp drop in energy costs, a fall in overall producer costs was a given. Most other areas were also tame. There was no rise in services costs, which had been driving the index. However, prices of finished consumer goods excluding food and energy continue to increase faster than any other category, indicating pressure on household prices may be building. Looking down the road, the pipeline appears to be largely empty. Intermediate and unprocessed goods prices were also largely down over the month.

One other number was released today and it was a good one. The New York Fed’s Empire State manufacturing index rose sharply. What it now shows is that instead of declining dramatically, the New York manufacturing sector is starting to increase, though modestly. Orders are picking up and expectations are rising. Hiring, however, has remains stunted.

 MARKETS AND FED POLICY IMPLICATIONS: Well, if you don’t like the economic data, wait a month and they will be revised. That is what happened with the retail sales numbers, which is a warning to the Fed. What you see today may not be what you see not too far down the road. The FOMC made that mistake in September, when it saw all sorts of weakness around the world and stepped back from hiking. That was also the case in January, when the Committee was again worried about the world and commodity prices. One constant, whether the Fed members wanted to accept it or not, was that the U.S. economy was in good shape. It is, but is it in as good a shape as we thought when the data told us consumers were spending this quarter? The retail sales report will only make it more difficult for those on the Fed who want to resume the tightening process. That said, with incomes rising and job growth strong, the prospects are for households to spend on things other than vehicles, both new and used. All those new vehicle loans – and the resultant monthly payments – are sapping consumer buying capacity. Still, household spending is disappointing and that could temper the statement that the Committee issues as well as Chair Yellen’s comments at tomorrow’s press conference.