Dive Brief:

• Retail sales rose a lower-than-expected 0.2% last month after shrinking 1.2% in January, the Commerce Department said Monday, bolstering concerns that a tariff war and other policy shifts by the Trump administration may chill consumer spending and slow the economy.
• Among 13 retail categories, seven registered lower sales, including motor vehicles, electronics, apparel, gasoline sales and spending at restaurants and bars, the Commerce Department said. Online spending and health-care products were among the categories that gained.
• “There is little doubt that the erratic tariff policies of the Trump administration have taken their toll on the near-term outlook, in part because of the policies themselves and in part because of the tremendous uncertainty about the scale, scope, and timing of tariffs,” American Action Forum President Douglas Holtz-Eakin said Monday, referring to consumer sentiment. His note preceded release of the retail data.

Dive Insight:

Tariffs enacted last month by President Donald Trump, along with others planned, may undercut economic growth this year by roughly 0.5 percentage point, partly by weakening sentiment among consumers and investors, according to Citigroup Chief Global Economist Nathan Sheets.

Trump’s approach to trade “and the configuration of Trump’s policies more broadly is creating meaningful uncertainty in the economy,” Sheets said Monday during a webcast hosted by the Economic Club of New York. “We at Citi hear this regularly from our clients — CEOs.”

Retail sales represent just one-third of total consumer spending. Yet the report Monday of slumping retail sales aligns with a 0.5% decline in overall consumer spending in January. The downturn preceded Trump’s announcement of the full extent of tariffs against products from Canada, Mexico, China, the EU and other trade partners.

“The animal spirit effects associated with Trump’s presidency on January 20 were distinctly positive and supported confidence in markets and so forth,” Sheets said. “We’ve swung to a place where, as a result of this uncertainty, they are now negative.”

Anemic retail sales prompted the Atlanta Fed on Monday to downgrade its outlook for the economy. Gross domestic product will likely shrink at a 2.1% annual rate during the first quarter. The regional Fed bank on March 7 predicted a 1.6% contraction during Q1.

Reports on two other segments of the economy flashed warnings on Monday.

“Business activity dropped significantly in New York State in March,” the New York Fed said, noting that its business conditions index fell 26 points to minus 20.0. “Optimism about the outlook waned considerably for a second consecutive month.”

Among home builders, an index of confidence in the market for newly built single-family homes fell three points this month to a seven-month low, the National Association of Home Builders said Monday.

“Builders continue to face elevated building material costs that are exacerbated by tariff issues, as well as other supply-side challenges that include labor and lot shortages,” NAHB Chair Buddy Hughes said in a statement.

The data followed reports last week highlighting weakness in consumer confidence, from the University of Michigan, and a souring outlook among small businesses, from the National Federation of Independent Business.