Cold weather hits US retail sales

The sales figures were worse than expected

A weaker-than-expected 0.1% rise in retail sales in February has sparked debate about whether the Federal Reserve will cut interest rates.

No change is expected when the rate-setters meet on 21 March, but some economists are predicting a cut at their meeting in June.

Strong sales of cars were not enough to make up for the effects of cold weather in the north-eastern United States.

Excluding the automotive sector, retail sales fell 0.1% in February.

The figures from the US Commerce Department showed that auto sales rose 0.9% in February, although that followed a fall of the same amount in January.

Retail sales account for about 40% of US consumption, so they are a key indicator of the state of the economy.

Growth figures for the last three months of 2006 were downgraded from 3.5% to 2.2% last month, as consumers spent less and companies cut their inventories.

Rate question

A report on Tuesday from the Organisation for Economic Co-operation and Development predicted that US growth would continue to be depressed by the slump in the housing market.

But it said that sustained job creation and the strong export market would continue to provide support.

After steadily raising interest rates for two years, the US Federal Reserve has left them unchanged since August 2006.

There have been hints in the minutes from its meetings that rates may need to be raised again, but as long ago as December's meeting, one member called for a statement saying rates could be adjusted in either direction.