Drop in Retail Sales a Worrying Sign for the Economy

march retail sales commerce department
Toby Talbot/AP
By Jason Lange

(Updated 9:11 a.m. EDT)

WASHINGTON -- U.S. retail sales contracted in March for the second time in three months, a sign the American economy may have stumbled at the end of the first quarter.

Retail sales fell 0.4 percent during the month, the Commerce Department said on Friday. That was below analyst expectations that sales would be flat.

The sales data supports the view that the U.S. economy continues to struggle and hasn't gained as much momentum has analysts believed just a few weeks ago.

At the same time, a separate report showed wholesale prices fell sharply in March due to lower gasoline costs. That will come as a relief to consumers beset by high prices at the pump, and could help the U.S. Federal Reserve maintain its very accommodative monetary policy.

Readings for retail sales have been volatile so far this year, making it difficult to know whether the weakness in March was due to a tax hike that went into effect at the start of the year or to temporary factors related to the weather.

Retail sales advanced 1 percent in February, according to revised readings from the government.

Stripping out cars, gasoline and building materials, sales fell 0.2 percent in March. This core measure corresponds closely with the consumer spending component of gross domestic product.

In a sign that higher taxes may have bitten more into family budgets than previously thought, the government revised lower past core retail sales figures to show a 0.3 percent gain in February and flat sales in January.

"The miss in retail sales sends concerns about the impact of higher payroll taxes," Omer Esiner, a market analyst at Commonwealth Foreign Exchange.

U.S. stock index futures extended loses after the data, while prices for U.S. Treasuries added to gains, with 30-year bonds rising one full point. The dollar fell further against the yen.


Prior reports on retail sales had made consumers look surprisingly resilient despite tax increases that kicked in on Jan. 1. A tax on payrolls climbed for all workers, while income tax rates rose for the nation's most wealthy.

Fiscal policy tightened further in March when the federal government began across-the-board spending cuts known in Washington as the "sequester," part of Washington's efforts to shrink the budget deficit.

Non-partisan researchers working for the U.S. Congress estimate Washington's austerity drive will subtract about 1.5 percentage points from economic growth this year.

"The worry is the full reaction to the expiration of the payroll tax cut and to the sequester budget cuts won't be evident until sometime this quarter," said Cary Leahey, a senior adviser at Decision Economics in New York.

Many economists have also noted the loss of economic momentum in many economic indicators for March could have been due to a warm winter, which may have led companies and consumers to pull forward spending.

Indicators from retail sales and hiring to factory manager confidence were much stronger in February, and a chilly March may have then dulled activity.

It is also plausible that economic reports haven't accurately adjusted for the shift in timing for the Easter holiday, which fell in March of this year after falling in April of 2012.

The weakness in March retail sales was broad based, with car sales down 0.6 percent and receipts from electronics and appliance stores down 1.6 percent. Sales at clothing stores rose just 0.1 percent.

Subdued Inflation

A separate report showed U.S. producer prices recorded their biggest drop in 10 months in March as the cost of gasoline tumbled.

The Labor Department said its seasonally adjusted producer price index fell 0.6 percent last month, the largest drop since May, after increasing 0.7 percent in February.

Economists polled by Reuters had expected prices received by the nation's farms, factories and refineries to fall only 0.2 percent.

In the 12 months through March, wholesale prices were up 1.1 percent, the smallest rise since July. Prices had increased 1.7 percent in February.

Underlying inflation pressures also were muted, with wholesale prices excluding volatile food and energy costs rising 0.2 percent for a third straight month.

In the 12 months through March, the so-called core PPI increased 1.7 percent after rising by a similar margin in February.

The benign inflation environment could strengthen the argument for the Fed to keep monetary policy loose as it tries to steer the economy towards faster growth, despite divisions among policymakers over continued asset purchases.

Minutes of the Fed's March 19-20 meeting released on Wednesday showed the U.S. central bank was moving closer to ending its monthly $85 billion purchases of mortgage and Treasury bonds to keep rates low and spur faster job growth.


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ldychatterly101

Years ago you could tell a person was old because they would tell you stupid stuff like when I was young a cup of coffee cost me 5 cents now it costs a dollar fifty. but now you can tell when someone is old because they say years ago an electrician made 25 dollars an hour ,now he makes $ 7.50 an hour

April 15 2013 at 2:12 AM Report abuse rate up rate down Reply
theresa

How is anyone even surprised by this? The payroll tax cuts expired, health insurance premiums went up significantly, as did prescription co-pays, and some insurance plans (including mine) now give you a deductible (we did not have one for the last 5+ years). All of these changes have hit the middle class hard. Who has extra money to spend to help stimulate the economy? I know my family sure does not and we both work full time with decent jobs. Our bills are paid, but we do not have any extra money that we can just go out and spend . My husband was hospitalized for one night back in March. Last year, a one night hospital stay carried a $100 co-pay for everything. This year, the total for that one day in the hospital is over $700 (we now have a $350/per person deductible). We have flex spending accounts and use them, but they were cut in half this year thanks to the president and congress. Where are we supposed to get the money from to stimulate the economy? Something has to give!

April 15 2013 at 1:58 AM Report abuse rate up rate down Reply
seekthetruth123

Hummmmm ........ could it be the economy and unemployment is alot worse than those in Washington are asking people to believe !

April 14 2013 at 11:25 PM Report abuse rate up rate down Reply
alesper33

who saved the auto industry in 2009? Republicans?

April 14 2013 at 10:03 PM Report abuse rate up rate down Reply
toosmart4u

If you are drawing a check from social security thank a democrat. Vote for the republicans and you will vote to end social security and medicare.

April 14 2013 at 9:32 PM Report abuse +2 rate up rate down Reply
1 reply to toosmart4u's comment
dfoster

If you're drawing Social Security, thank taxpayers who deposited the money in their accounts and died before collecting it. If you're worried about whether it will still exist in the future, look to the politicians (esp. the Democrats) who have stolen the money and replaced it with IOUs not backed by anything (so they could could continue gluttonous spending.)

April 14 2013 at 10:15 PM Report abuse rate up rate down Reply
vondeck

My health inurance went up another 10% thi$ year. I pay over 15,000 a year for my family health in$urance. Obamacare i$ going to drag thi$ country into depre$$ion.

April 14 2013 at 6:11 PM Report abuse +2 rate up rate down Reply
created14u2

Retail sales will just keep dropping as people will have less and less disposable income to spend as the months go by. As health care reform is starting to go into effect, insurance companies are getting a head start by alerting consumers of skyrocketing insurance premiums to those who have coverage. Coupled with the sequester, payroll tax increases, inflation, and non-existent cost of living increases, people are hardly making it.
The worst is yet to come as unemployment will increase as sales will further decrease as retailers and will not hire. Not only that, profits will be eaten up by the required health insurance to employees or be fined. It will be even more difficult to find a job, even with a college degree. It's not something this country needs with a student loan crisis as is. It's a very grim picture, but unfortunately true. I try not to think about all these factors and more and take one day at a time because it is so overwhelming and depressing!!
The future looks very grim economically for this country.

April 14 2013 at 4:55 PM Report abuse +3 rate up rate down Reply
onebluebrick

So people will buy products at those reduced prices and the economy will rebound.

April 14 2013 at 4:12 PM Report abuse rate up rate down Reply
chasgustaf

Shouldn't be worrying to the Republicans. They ae he// bent on taking money out of everyones pocket EXCEPT the 2%.

April 14 2013 at 3:25 PM Report abuse -3 rate up rate down Reply
mikeyintheoc

We need to come up with better measuring metrics to determine our nation's...what wait what is it exactly we use to measure how well off we our?

Signed:
Stock Market rolling along.
Retail sales off.
Home sales up!
Sequester in place.

April 14 2013 at 2:05 PM Report abuse rate up rate down Reply
1 reply to mikeyintheoc's comment
seekthetruth123

Reality, stock market is bouncing like a rubber ball. Retail sales are way down, guess you didnt read the article. Home sells are only up in some parts of the country, not across the country. Sequester being in place is the only thing you got right.

April 14 2013 at 11:28 PM Report abuse rate up rate down Reply