Advance retail sales were much worse than anticipated in March, falling 0.3%, following an unchanged reading in February, and expectations for a 0.1% increase. Sales are now 1.7% higher than a year ago. Excluding autos, sales were also lower than expected, rising 0.2% after a flat reading in February. Sales for this category are now up 1.8% from one year ago. Motor vehicle and parts sales decreased by 2.1%, also after a flat reading and a 0.5% decline in January; they are now 1.4% higher than a year ago (the lowest annual change since August 2010).
The most meaningful measure of retail sales activity excludes gasoline and auto sales (to negate the volatile influences of gasoline prices and auto financing incentives). Sales at gasoline stations increased by 0.9% (the first increase since June 2015!), following a 5.4% fall in February, and are 15.6% lower than a year ago. The strength in core sales was mainly focused at stores for building materials and gardening equipment (1.4%), health and personal care (1.0%), general merchandise stores (0.5%), and furniture and home furnishings (0.3%). Most of the weakness in the month came from decreases at motor vehicle stores, clothing and clothing accessory stores, food service and drinking places, and nonstore retailers. Excluding gasoline and autos, retail sales were 0.1% higher on the month, following a 0.6% rise in February, and were 3.9% higher than a year ago. Lastly, non-auto, non-gasoline station sales, less building and gardening equipment, were flat in the month and 3.3% higher annually.
There is little doubt that consumer spending has been patchy and weaker than most had anticipated given the fall in the price of energy and the stronger employment data we have seen over the last few quarters. March’s retail sales report was a disappointment at the headline level, but also softer at the core level (excluding the volatile auto component). This month’s report was expected to be a key indicator for the financial market participants, who were hoping to see any signs of the consumers breaking out of their lackluster growth phase. The decline in the headline rate was the result of a large fall in auto sales during the month (-2.1%), where sales are now peaking out after having been at the peak of their longer-term range and the highest in more than a decade. Sales are also likely to have been adversely impacted by the warmer weather during the first quarter, which has resulted in the further ascent of the inventory-to-sales ratio amongst the retailers. Overall, there was little here to suggest that the pace of consumption has improved much. This softer-than-expected retail sales report is only likely to result in first-quarter GDP growth estimates being revised down even lower and also re-emphasises that there is little imminent need for another interest rate increase.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.