The Economy

Retail Sales Drop 0.2% in 2nd Straight Decline

The March sales report is another sign that consumers “have retrenched a bit in terms of spending in recent months."
Matthew HellerApril 17, 2017
Retail Sales Drop 0.2% in 2nd Straight Decline

U.S. retail sales fell for a second straight month in March, another sign that consumer spending has weakened early in 2017 despite a healthy labor market.

The Commerce Department said retail sales declined 0.2% last month, exceeding economists’ estimates of a 0.1% drop. Coming on the heels of February’s revised 0.3% drop, sales have recorded the worst two-month decline in two years.

“Consumers have retrenched a bit in terms of spending in recent months,” Jim Baird, chief investment officer at Plante Moran Financial Advisors, told Business Insider.

He added, however, that with “labor market conditions as tight as they are, we do expect to see some upward pressure on wages,” which should result in increased spending.

Retail sales in March were hit by a 1.2% tumble in receipts at auto dealerships — the third straight monthly drop in auto sales — a 1.0% drop in gasoline sales, and a 1.5% plunge in sales at building material stores/

Excluding automobiles, gasoline, building materials and food services, core retail sales rebounded 0.5% last month after falling 0.2% in February. Helping offset the declining categories were increases of 2.6% at electronics and appliance stores, 1% at clothing shops, and 0.6% online.

“The downturn in auto sales is going to be a headwind for retail in general,” Baird said.

According to Reuters, consumer spending “likely braked sharply in the first quarter after growing at a brisk 3.5 percent annualized 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.”

But with the labor market near full employment, the retail sales report is unlikely to dim expectations that the U.S. Federal Reserve will raise interest rates again in June.

“For the Fed, the underlying momentum is more important in terms of policy decisions, and that looks to be strong, supported by a tightening labor market, rising incomes and high consumer confidence,” Gregory Daco, head of U.S. macroeconomics at Oxford Economics in New York, told Reuters.