US retail sales increased in February, but the six-month moving average of the monthly change in retail sales excluding gasoline and autos has languished at zero for the past two months. That’s the worst result for the six-month average since the recovery began.

It appears that US households are saving rather than spending. In December, US households saved 7.6% of their disposable income, a small proportion by global standards, but the highest reading since 2015. The bottom half of US households by income can’t easily get credit and lives from paycheck to paycheck. That’s why pay increases to unskilled workers haven’t translated into more spending.

All this adds up to a growth trajectory of around 1% for 2019. The Atlanta Federal Reserve’s GDP Now tracking model projects GDP growth of just 0.2% annualized during the first quarter. With profit margins compressing in the S&P 500 and earnings projected to fall 4% year-on-year during the first quarter, I would have expected a less cheerful market response to the retail sales data. This is a sluggish economy but not a particularly dangerous one.

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