Retail sales in the U.S. unexpectedly fell in March by the most in nine months as employment slowed, showing households ended the first quarter on softer footing.
The 0.4% decrease, the biggest since June, followed a 1% gain in February, Commerce Department figures showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg called for an unchanged reading in March. Department stores and electronics dealers were among the weakest showings.
The figures may prompt economists, who are projecting consumer spending climbed in the first quarter at the fastest pace in two years, to reduce growth estimates. A pickup in hiring and bigger increases in wages will be needed to ensure any slowdown proves temporary as federal budget cuts and an increase in the payroll tax restrain the expansion.
“Households are now making those difficult choices on how to adjust spending,” said Ellen Zentner, a senior economist at Nomura Securities International Inc. in New York, who projected sales would drop. “We have no steam going into the second quarter.”
Wholesale prices fell more than forecast in March as the cost of energy slumped by the most in three years, data from the Labor Department also showed today. The 0.6% drop in the producer price index was the biggest since May and followed a 0.7% gain in the prior month.
Stock-index futures held earlier losses after the reports. The contract on the Standard & Poor’s 500 Index maturing in June fell 0.3% to 1,582.4 at 9:04 a.m. in New York after the gauge closed at a record high yesterday.
Economists’ sales estimates in the Bloomberg survey ranged from a decline of 0.6% to an advance of 0.7%. The February reading was revised from an initially reported 1.1% increase, and January was cut to a 0.1% drop from a previously reported 0.2% gain.
Seven of 13 major categories showed declines last month, led by a 1.2% decrease at general merchandise outlets, which includes department stores, and a 1.6% drop at electronics dealers.
Sales at automobile and parts dealers fell 0.6% after a 1.3% gain the prior month, today’s report showed. Industry figures, which are the ones used to calculate gross domestic product, showed car and light truck sales dipped in March, falling to a 15.2 million annual rate from 15.3 million the prior month, according to Ward’s Automotive Group. The first quarter sales average was the highest since 2008.
Retail sales excluding autos decreased 0.4%, today’s report showed. They were projected to be little changed, according to the Bloomberg survey median.
The retail sales figures, which aren’t adjusted for prices, reflected less expensive gasoline. The average cost of a gallon of regular fuel at the pump dropped about 13 cents to end last month at $3.63, the first decrease in March since AAA, the biggest U.S. auto group, began keeping data in 2004. Filling- station receipts dropped 2.2% last month, according to the Commerce Department data.
The retail sales category used to calculate GDP, which excludes auto dealers, building-material stores and service stations, sales fell 0.2% after a 0.3% increase in the previous month.
March’s weaker sales data comes after demand strengthened at the end of 2012 and into this year. Consumer spending advanced at a 1.8% rate from October to December, according to Commerce Department data. It rose at a 3% rate from January to March, the most since the first quarter of 2011, according to median projection of economists surveyed by Bloomberg this month.
Sales held up even as taxes took more from Americans’ paychecks. Congress agreed to a fiscal pact on Jan. 1 that allowed the tax used to finance Social Security to revert to 6.2% from 4.2%.
“The payroll tax increase is hurting,” Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors Inc. in While Plains, New York, said in a note. “You should expect second- quarter consumption to rise at a much slower pace.” Shepherdon correctly projected the drop in sales.
Consumer spending will probably slow to a 1.8% pace from April through June, according to the Bloomberg survey of 59 economists taken from April 5 to April 9.
Payrolls grew by 88,000 last month, the smallest increase since June, the Labor Department said on April 5. Average hourly earnings were unchanged in March from the prior month, the weakest showing since October.
Recent reports have added to concern that across-the-board government budget cuts, known as sequestration, will impede progress made in the job market. Reductions in planned spending, which began March 1, trim 5% from domestic agencies and 8% for the Defense Department this fiscal year.
“Clearly the economy is still pressuring the consumer out there,” Ken Martindale, chief executive officer of drugstore chain Rite Aid Corp., said during an April 11 earnings call. “We’re sticking with our promotional program. We’d like to get less dependent on promotions.”