Sunday 19 / May / 2024
Washington: US retail sales fell for a second straight month in March and consumer prices dropped for the first time in just over a year, underscoring the magnitude of the loss of economic growth momentum in the first quarter.
But with the labour market near full employment, Friday's weak reports failed to change views that the Federal Reserve will raise interest rates again in June. Economists expect a rebound in both retail sales and monthly inflation.
"For the Fed, the underlying momentum is more important in terms of policy decisions, and that looks to be strong, supported by a tightening labour market, rising incomes and high consumer confidence," said Gregory Daco, head of US macroeconomics at Oxford Economics in New York.
The Commerce Department said retail sales dropped 0.2 per cent last month after a 0.3 per cent decrease in February, which was the first and biggest decline in nearly a year. Compared to March last year retail sales increased 5.2 per cent.
Economists had forecast retail sales slipping 0.1 per cent. Excluding automobiles, gasoline, building materials and food services, retail sales rebounded 0.5 per cent last month after falling 0.2 per cent in February.
These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
Despite last month's rebound in core retail sales, consumer spending likely braked sharply in the first quarter after growing at a brisk 3.5 per cent annualised rate in the final three months of 2016. The apparent slowdown in consumption is partly blamed on the late disbursement of income tax refunds by the government as it sought to combat fraud.
The Atlanta Fed lowered its first-quarter GDP estimate by one-tenth of a percentage point to a 0.5 per cent rate, which would be the weakest performance in three years. The economy grew at a 2.1 per cent pace in the fourth quarter.
With job growth averaging 178,000 per month in the first quarter, the anticipated slowdown in GDP likely understates the health of the economy. First-quarter GDP tends to be weaker because of calculation problems that the government has acknowledged and is working to resolve.
Retail sales last month were undercut by a 1.2 per cent tumble in receipts at auto dealerships. It was the third straight monthly drop in auto sales. Lower gasoline prices also undermined retail through a 1.0 per cent drop in receipts at service stations.
Pockets of strength
A 1.5 per cent plunge in sales at building material stores was also a drag. But electronics and appliances store sales recorded their biggest rise since June 2015.
Receipts at clothing stores increased by the most in a year, despite declining mall traffic and increased competition from online retailers, led by Amazon.com.
Retailers like J.C. Penney, Abercrombie & Fitch and Macy's are scaling back on brick-and-mortar operations.
US financial markets were closed for the Good Friday holiday.
In a separate report, the Labour Department said its Consumer Price Index dropped 0.3 per cent in March, the first decline in 13 months and biggest decrease since January 2015 amid falling prices for gasoline and mobile phone services, which offset rising rents and food costs.
The CPI nudged up 0.1 per cent in February. In the 12 months through March, the CPI rose 2.4 per cent, slowing from February's 2.7 per cent increase.
The so-called core CPI, which strips out food and energy costs, fell 0.1 per cent, the first and biggest drop since January 2010, after rising 0.2 per cent in February. The year-on-year increase in the core CPI slowed to 2.0 per cent, the smallest advance since November 2015, from 2.2 per cent in February.
"We don't think this is enough to cause the Fed to swerve from their stated desire to continue gradually increasing the funds rate, though it may embolden the doves' rhetoric," said Michael Feroli, an economist at JPMorgan in New York
The Fed has a 2 per cent inflation target and tracks an inflation measure which is at 1.8 per cent. The US central bank lifted its overnight interest rate by a quarter of a percentage point in March and has forecast two more hikes this year.
A 6.2 per cent drop in gasoline prices was the biggest factor in the monthly decline in the CPI, which was also weighed down by a record 7.0 per cent plunge in the cost of wireless telephone services.
