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Consumers spending on homes, health — and little else

Look in the mirror.

Do you see a person with a resolute brow, armor across the chest, sword drawn in the right hand, shopping bag in the left?

That's the image economists have had of you and other consumers — the image of a powerful force in the economy, a recession slayer.

Fueling about two-thirds of the U.S. economy, consumers have been viewed as a potent force, able to overcome a decline in manufacturing, mining, and oil and gas — roughly 14 percent of the economy. But then the federal government released the nation's retail sales data for February and January, and the image became less assuring.

"The February retail sales report is a major downer," said IHS Global Insight economist Chris Christopher in a note to clients.

Retail sales fell 0.1 percent in February as consumers were reluctant to spend on almost everything except their homes. Analysts had been expecting solid increases in retail sales in February because the government's data released for January had been surprisingly strong. But Tuesday's report not only revealed a consumer less resolute about spending in February, but also one who had been cautious about spending all the way back to the start of this year. Each month the government reviews data after releasing it, and found that January's was wrong. Rather than a gain, sales dropped, 0.4 percent.

Instead of recession slayers, "consumers are still fragile," said Stifel Nicolaus economist Lindsey Piegza.

"Consumers are restrained by still-modest income gains and lingering uncertainty about the health of the U.S. economy, as well as their individual financial footing," she said. Consumer spending has improved from the weak 2 percent annual pace of last year, "but it remains a far cry from a circa 5 percent pace less than 18 months ago."

She isn't predicting a recession, but "without a meaningful pickup in spending," the economy will be hard-pressed to even keep growing at a stagnant 2 percent pace.

The major losers were car and truck dealers and those selling auto parts, Christopher said. That was a change from the last few months when auto sales were brisk. Recently, furniture also took a dip after being a popular choice for consumers earlier this year. Other losers, noted Christopher, were electronics, groceries, gasoline, general merchandise, department stores and even nonstore retailers — a disappointment for people who figured consumers had soured on stores, but not on shopping.

The strong sectors, however, are building materials and garden supply stores, suggesting that cautious consumers are prioritizing. They are fixing their homes rather than going on shopping sprees. Building material sales rose 1.6 percent in February, a trend that has shown up lately in the strong performance of Home Depot sales and stock. Health and personal care spending also rose 0.7, a trend that has helped bolster stock of Bolingbrook-based Ulta into one of the nation's leaders.

Home Depot stock has climbed 12.8 percent over the last 12 months and Ulta 25 percent, while retail stocks generally — in the SPDR S&P Retail exchange-traded fund — have declined 6.7 percent.

Retail stocks plunged late last year, as retailers had a rough holiday shopping season. They had been climbing lately, in part, because of improvement in laggards such as J.C. Penney and Macy's, plus expectations that increasing employment and low oil prices would help.

Capital Economics economist Steve Murphy said Tuesday, "While real consumption has clearly started the year on a soft footing, solid employment gains and a pickup in wage growth will help drive an improvement" later this year.

Twitter @gailmarksjarvis

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