For the 2nd straight month, U.S. retail sales have fallen while consumer prices fell for the 1st time in 13 months. This gives support to views that the U.S. economy in the first quarter of the year has lost major momentum.
According to the Commerce Department, retail sales dropped 0.2% last month, following a 0.3% drop in February. In March 2016, retail sales grew by 5.2%. For March, the estimated consumer spending was $470.8 billion.
The slowdown in consumer spending can be partly blamed because the government did not disburse the income tax refunds early as there were concerns of fraud.
The auto sector continues to show signs of strength. For the 1st quarter of 2017, sales for motor vehicle and parts dealer grew by 5.4% compared to the same period in 2016 and 1% higher compared to the previous quarter.
Another bright spot are electronics and appliance stores which boosted their sales volumes by 2.6%. Clothing and accessory stores, on the other hand, grew their sales by 1%.
However, the labor market remains near full employment, and it is unlikely that the Fed won’t raise interest rates in June.
Paul Ashworth, chief U.S. economist at Capital Economics, said, “Some Fed officials will be disturbed by the unexpected drop back in core inflation, but this won’t prevent a June rate hike.”
Inflation, on the other hand, slowed down to 2.4% in March. Last month, inflation was at a five-year high of 2.7%.
The Fed is targeting inflation to be stable at around 2%.
However, core CPI, which excludes energy and food categories which are volatile, went down by 0.1%. The core CPI is what the Fed and Wall Street considers a better gauge of inflation.
Rent costs increased by 0.3% this March while the cost of wireless telephone services fell by 7%. Medical care costs increased by 0.1% while apparel prices went down by 0.7%. Other costs that went up include car insurance and airline fares.
The consumer price index, which measures the cost of living, dropped by 0.3% in March. Marketwatch polled some economists, and they forecasted a 0.1% decline in the cost of living.
House prices have also fallen, and because of a drop in prices for gasoline and other fuels, inflation has stabilized in February and March.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said, “Another month like March and a June rate hike will become less likely.”
Last month, the Fed raised the key interest rate for the 2nd time in three months. It intends to do two more rate hikes this year to maintain inflation at 2%.
Taking into account inflation, hourly wages for American worker rose only by 0.5%.
A 0.6% GDP increase in the 1st quarter is forecasted by the Atlanta Fed. If accurate, this would be America’s weakest performance in three years.
Last quarter, GDP increased by 2.1%. GDP in the first quarter tends to be weaker due to calculation issues that the government is currently resolving.
For the 1st quarter, job growth has averaged 178,000 monthly.