Retail Sales Fall Again On Auto Weakness; Consumer Inflation Cools

Retail sales fell for a second straight month in March, hurt by fewer purchases of automobiles, the Commerce Department reported Friday. Meanwhile, monthly consumer prices fell for the first time this year, easing inflation, Labor Department data showed.

Key Points

Value of purchases fell 0.2% (in line with median forecast) after February sales were revised to a 0.3% decrease (previously reported as a 0.1% gain) But underlying retail sales, which are used to calculate GDP and exclude the categories of food services, auto dealers, building materials outlets and gasoline stations, rose 0.5% after falling 0.2 percent Over the last three months, core retail sales increased an annualized 4.1%, compared with 3.8% at the end of last year.

Big Picture

Sales declined in six of 13 major retail categories in March. While household outlays are projected to cool in the first quarter, steady hiring, healthier household balance sheets and more optimistic consumers will probably underpin spending. A confidence report Thursday showed a favorable buying climate for big-ticket items. Tax refunds, which had been delayed earlier this year, may help provide more wherewithal for consumers in the months ahead.The report also helps explain why retailers have been cutting jobs this year and closing stores, with Internet sales outpacing purchases at brick-and-mortar merchants.


Economist Takeaway

"As with last year, we expect the first quarter (and especially March) weakness in auto sales to be short-lived as the job market expands. Moreover, gasoline prices have risen again in April," David Berson, chief economist at Nationwide, said in a note after the report. "Consequently, we look for consumer spending to rebound in April and following months."

Other Details

Purchases at auto dealers decreased 1.2% in March after a 1.5% drop; industry data showed sales of cars and light trucks fell to a 16.5 million pace, the slowest in more than two years Receipts at gasoline service stations fell 1% in March; the retail figures don't reflect changes in prices Retail sales excluding autos were little changed for a second straight month. Sales at building materials outlets fell 1.5%. Purchases at non-store retailers rose 0.6% for a second month, while sales at general merchandise stores rose 0.3%.

Consumer Price Index

The consumer price index decreased 0.3% vs. forecasts for no change, following February's 0.1% gain. From a year earlier, prices were up 2.4%, below forecasts for 2.6%, down from February's 2.7% gain. Excluding food and energy, core CPI fell 0.1% from the prior month, the first decrease since January 2010 Core rate was up 2 percent from March 2016.

Big Picture

The decline — reflecting cheaper motor vehicles, wireless phones services and apparel — interrupts a recent pickup in inflationary pressures. Businesses have been regaining some pricing power on the heels of improving global demand and steady sales in the U.S. The Federal Reserve's preferred gauge of inflation, a separate figure that's based on what consumers purchase, exceeded its 2% goal in February, though some officials focus on the measure excluding food and energy, which is still below their target. The year-over-year gain in the March core CPI was the smallest since November 2015.

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