Story from the Wall Street Journal
WASHINGTON -- U.S. retail sales unexpectedly plunged during March in a broad-based decrease that threw a shadow over recent signs of improvement in the slumping economy.
Retail sales decreased by 1.1% compared to the prior month, the Commerce Department said Tuesday. Economists expected an increase of 0.3%.
Sales in February were revised up, increasing 0.3% instead of dipping 0.1% as originally reported. January sales were revised up to an increase of 1.9% from an increase of 1.8%.
The big decline in March sales was a disappointment. The increases in January and February sales had temporarily ended a freefall in consumer spending during the second half of 2008. People seemed to be braving a pitiless job market and pulling out their wallets again, which is good for the economy. Consumer spending makes up 70% of gross domestic product, the broad measure of economic activity.
Other signs have emerged the economy might be stabilizing. Big bank Wells Fargo last week projected net income of $3 billion in the first quarter, well above analysts' expectations. The optimistic earnings report within the suffering banking sector pushed up the overall stock market.
And the government Thursday reported the U.S. trade deficit shrank 28% in February. Analysts said the sharp drop limited the size of the first-quarter fall of GDP.
GDP plunged 6.3% in the fourth quarter, which may have been the pit of a recession that started in December 2007. Retail sales, a key indicator of consumer spending, fell July through December last year.
But instead of extending hopes of consumer confidence, Tuesday's retail sales data seemed a setback. Housing-sector sales dropped sharply in March, with furniture retailers down 1.7% and building material and garden supplies dealers sliding 0.6%.
Another sector that has weighted down the economy is cars. Year over year, auto and parts retail sales have fallen 23.5% since March 2008. March 2009 sales fell 2.3% compared to the prior month. Excluding autos, all other sales dropped 0.9% -- bigger than the 0.1% dip expected by economists. Auto sales dropped 3.0% in February and ex-auto sales that month rose an upwardly revised 1.0%.
March gas station sales retreated 1.6%, after rising 3.1% in February. Stripping away sales at gas stations, demand at all other retailers decreased 1.1% in March.
Excluding auto sales and gas station sales, all other retailers saw sales fall 0.8% in March.
Sales last month decreased 1.8% at clothing stores; 5.9% at electronic stores; 0.2% at general merchandise stores; 1.7% at mail order and Internet retailers; 0.9% at sporting goods, hobby, book and music stores; and 1.4% at eating and drinking places.
Sales rose 0.4% at health and personal care stores and 0.5% at food and beverage stores.
Producer Prices Drop
U.S. producer prices posted the biggest drop so far this year in March after two straight months of gains on the back of falling energy costs, though core prices remained steady.
Price pressures deeper in the production pipeline declined last month, as well, as prices on both intermediate goods and raw materials fell for the eighth month in a row.
The data could raise concerns about the risk of deflation as the Federal Reserve continues to take extraordinary measures to support the weak economy and strained financial markets, though few policymakers have expressed much concern about a deflationary spiral thus far.
The producer price index for finished goods fell 1.2% on a seasonally adjusted basis in March, the Labor Department said Tuesday, after rising 0.1% in February. Last month's drop was much bigger than the 0.1% decline predicted by economists in a Dow Jones Newswires survey, and was the largest since the 3.9% decrease in December.
PPI was off 3.5% from March 2008, the largest annual decline since January 1950.
Core PPI, which excludes food and energy costs, was unchanged last month from February, versus expectations for a 0.1% increase. It was up 3.8% from a year ago.
Last week, a government report showed the first gain in U.S. import prices in eight months in March amid a jump in oil prices. However, consumer prices due out Wednesday are expected to ease a bit.
The PPI data showed energy prices sliding 5.5% last month, after rising 1.3% in February. Wholesale gasoline prices decreased 13.1%. Food prices, meanwhile, were down 0.7%.
Prices of passenger cars fell 0.2%, while light truck prices declined 0.4%.
Deeper in the production pipeline, declining prices suggested that deflationary pressures would remain in place. Prices of raw materials, known as crude goods, fell 0.3% on the month. Core crude goods prices decreased 1.6%.
Intermediate goods prices fell 1.5%, while core intermediate goods decreased 0.3%.
