March Retail Sales Fell as Consumers Cut Back

Retail sales declined a seasonally adjusted 0.4 percent last month, compared with February, the Commerce Department said on Friday. That followed a 1 percent gain in February and a 0.1 percent decline in January. The figures for February and January were both revised lower from initial reports.

Consumers cut back spending across a wide range of categories last month. Sales at auto dealers dropped 0.6 percent. Gas station sales dropped 2.2 percent, partly reflecting lower prices for fuel. The retail figures are not adjusted for price changes.

Excluding the volatile categories of autos, gasoline and building materials, core sales dropped 0.2 percent in March. That followed a gain of 0.3 percent in February. Department stores, electronics retailers and sporting goods outlets all reported lower sales.

The retail sales report is the government’s first look at consumer spending, which drives about 70 percent of economic activity.

The decline in March shows that higher Social Security taxes are starting to affect consumers and could blunt growth in the spring.

Many economists still predict that economic growth accelerated to an annual rate of roughly 3 percent in the quarter from January to March. That would be a significant increase from the anemic growth rate of 0.4 percent reported for the quarter from October to December.

Still, economists say the improvement is most likely temporary. Many now expect weaker spending will be among factors that slow growth again in the quarter from April to June quarter, with an annual growth rate of around 1.5 percent.

“The U.S. consumer looks a little less resilient,” said Michael Feroli, an economist at JPMorgan Chase. “It now appears that close to $200 billion in higher taxes may have actually had some impact on consumer spending.”

A separate report Friday on consumer confidence for April seemed to underscore that point.

The University of Michigan’s preliminary survey of consumer sentiment fell to 72.3. That’s down from 78.6 in March and the lowest since July. The discouraging jobs report and other weak economic reports are probably responsible for influencing consumers’ sentiment.

Companies are also less optimistic about the next few months, according to a separate Commerce Department report issued Friday. Businesses increased their stockpiles only 0.1 percent in February, the smallest gain in eight months. That suggests that companies had expected sales to weaken this spring, a point confirmed by the March retail sales figures.

Economists said restocking would probably remain tepid in the quarter from April to June. Slower restocking means companies order fewer goods, which slows factory output and growth.

“The economy appears to have lost some momentum,” said Paul Dales, an economist at Capital Economics. “But with gasoline prices now falling, we don’t expect too sharp a slowdown.”

The cost of a gallon of gas averaged $3.56 nationwide Thursday, down from $3.70 a month earlier, according to AAA.

The increase in Social Security taxes has lowered take-home pay this year for nearly all workers. Someone earning $50,000 will have about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less.

There were a few positive signs in the retail spending report. Furniture stores reported a 0.9 percent sales increase, suggesting that the housing recovery was still encouraging more spending. And sales at hardware and garden supply stores ticked up 0.1 percent, despite an unseasonably cold March.

But sales at general merchandise stores, which include major department stores like Macy’s and big discount stores like Walmart and Target, dropped 1.2 percent.

Article source: http://www.nytimes.com/2013/04/13/business/economy/march-retail-sales-fell-as-consumers-cut-back.html?partner=rss&emc=rss