WASHINGTON: US retail sales contracted in March for the second time in three months and consumer confidence tumbled in April, a sign that tax hikes early this year have stolen momentum from the American economy.
Retail sales fell 0.4 percent in March, the Commerce Department said yesterday. That missed analysts’ expectations of a flat reading.
The data supports the view that the US economy continues to struggle and hasn’t performed as well as analysts believed just a few weeks ago. Many analysts cut their growth forecasts for the first quarter.
“The payroll tax increase is hurting,” said Ian Shepherdson, an economist at Pantheon Macroeconomic Advisors in White Plains, New York.
At the same time, a separate report showed wholesale prices fell sharply in March due to lower gasoline costs. That will come as a relief to consumers beset by high prices at the pump, and could help the US Federal Reserve maintain its very accommodative monetary policy.
Readings for retail sales have been volatile so far this year, making it difficult to know whether the weakness in March was due to a tax hike that went into effect at the start of the year or to temporary factors related to the weather.
But in a sign that higher taxes may have bitten more into family budgets than previously thought, sales fell 0.2 percent in March when stripping out cars, gasoline and building materials. This core measure corresponds closely with the consumer spending component of gross domestic product.
The government also revised lower past core retail sales figures to show a 0.3 percent gain in February and flat sales in January.
“The miss in retail sales sends concerns about the impact of higher payroll taxes,” Omer Esiner, a market analyst at Commonwealth Foreign Exchange.
Following the report, Barclays cut its estimate for first quarter growth to a 2.8 percent annual rate from a 3.2 percent rate.
Also weighing on the outlook for first quarter growth, US business inventories rose less than expected in February, data from another Commerce Department report showed.
US stocks declined on the weak retail sales data and as results from major banks failed to impress investors. Prices for U.S. Treasuries rose, while the dollar extended its declines against the yen.
Prior reports on retail sales had made consumers look surprisingly resilient despite tax increases that kicked in on January 1. A tax on payrolls climbed for all workers, while income tax rates rose for the nation’s most wealthy.
Reuters
