US retail sales unexpectedly fell in March as households cut back on purchases of automobiles and other items, further evidence that economic growth stumbled in the first quarter. Other data on Wednesday showed a surprise drop in producer prices last month as rising energy prices were offset by a decline in the cost of services. The two reports suggested the Federal Reserve will probably not raise interest rates until later this year.
"The data solidifies the well-entrenched narrative of a very weak first quarter for the US economy. For the Federal Reserve ... it argues for continued caution," said Millan Mulraine, deputy chief economist at TD Securities in New York. The Commerce Department said retail sales declined 0.3 percent last month, confounding economists' expectations for a 0.1 percent gain. They were unchanged in February. Retail sales excluding automobiles, gasoline, building materials and food services ticked up 0.1 percent last month after edging up 0.1 percent in February. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
March's weak numbers implied that consumer spending lost steam after robust gains in 2015, and put consumption on a slow path heading into the second quarter. Consumer spending accounts for more than two-thirds of US economic activity. The retail sales report added to recent data on trade and business spending in suggesting the economy hit a soft patch in the first three months of the year. That was reinforced by a second report from the Commerce Department showing a dip in business inventories in February.
GDP growth estimates for the first quarter are currently as low as a 0.2 percent annualised rate. The economy expanded at a 1.4 percent pace in the fourth quarter. In a third report, the Labour Department said its producer price index slipped 0.1 percent last month after dropping 0.2 percent in February. In the 12 months through March, the PPI dipped 0.1 percent after being unchanged in February. Economists had forecast the PPI advancing 0.2 percent last month and gaining 0.3 percent from a year ago. Soft producer prices point to overall inflation remaining below the Fed's 2 percent target for a while.