WASHINGTON - Sales at U.S. retailers fell in March from February, indicating that higher taxes and weak hiring likely made some consumers more cautious about spending.
Retail sales declined a seasonally adjusted 0.4 per cent last month, the Commerce Department said Friday. That followed a 1 per cent gain in February and a 0.1 per cent decline in January. Both February and January figures were revised lower.
Consumers cut back across a wide range of categories last month. Sales at auto dealers dropped 0.6 per cent. Gas station sales dropped 2.2 per cent, partly reflecting lower prices. The retail figures aren't adjusted for price changes.
Excluding the volatile categories of autos, gas and building materials, core sales dropped 0.2 per cent in March. That followed a gain of 0.3 per cent in February. Department stores, electronics retailers and sporting goods outlets all reported lower sales.
The retail sales report is the government's first look at consumer spending, which drives about 70 per cent of economic activity.
The decline in March shows higher Social Security taxes are starting to affect consumers and could dampen growth in the spring.
Many economists still predict economic growth accelerated to an annual rate of roughly 3 per cent in the January-March quarter. That would be a significant increase from the anemic growth rate of 0.4 per cent reported for the October-December quarter.
Still, economists say the improvement is likely temporary. Many now expect weaker spending will be among factors that slow growth again in the April-June quarter, to an annual rate of around 1.5 per cent.
"The U.S. consumer looks a little less resilient," said Michael Feroli, an economist at JPMorgan Chase. "It now appears that close to $200 billion in higher taxes may have actually had some impact on consumer spending."
A separate report Friday on April consumer confidence seemed to bolster that point.
The University of Michigan's preliminary survey of consumer sentiment fell to 72.3. That's down from 78.6 in March and the lowest since July. The discouraging jobs report and other weak economic reports weighed on consumers' minds.
Companies are also less optimistic about the next few months, according to a separate Commerce report issued Friday. Businesses increased their stockpiles only 0.1 per cent in February, the smallest gain in 8 months. That suggests companies had expected sales to weaken this spring, a point confirmed by the March retail sales figures.
Economists said restocking will likely stay tepid in the April-June quarter. Slower restocking means companies will order fewer goods, slowing factory output and growth.
"The economy appears to have lost some momentum," Paul Dales, an economist at Capital Economics, said. "But with gasoline prices now falling, we don't expect too sharp a slowdown."
The cost of a gallon of gas averaged $3.56 nationwide Thursday, down from $3.70 a month earlier.
The increase in Social Security taxes has lowered take-home pay this year for nearly all workers. Someone earning $50,000 has about $1,000 less to spend in 2013. A household with two high-paid workers has up to $4,500 less.
Growth for the rest of the year will depend on what happens with hiring.
Employers added only 88,000 jobs last month, much lower than the average gain of 220,000 in the previous four months. But hiring may pick up in the coming months. Weekly unemployment benefit applications fell sharply last week, suggesting that companies are cutting fewer jobs.
There were a few positive signs in the retail spending report. Furniture stores reported a 0.9 per cent sales increase, suggesting the housing recovery is still encouraging more spending. And sales at hardware and garden supply stores ticked up 0.1 per cent, despite an unseasonably cold March.
But sales at general merchandise stores, which include major department stores such as Macy's and big discount stores such as Wal-Mart and Target, dropped 1.2 per cent.