Retail sales declined by 0.2 percent in March, matching consensus expectations. February retail sales were also revised sharply lower to a 0.3 percent month-over-month decline. Despite two very soft months for the sector, sales increased 1.0 percent for the quarter, and were 5.4 percent higher than in the first quarter of 2016.
After a strong 2016, auto sales slowed again in March, declining by 1.5 percent. As expected, weakness in the sector (which accounts for over 15 percent of retail sales) weighed on the top-line sales number. Even excluding that drag, sales were flat over the past two months, suggesting that there’s a broader story behind the decline.
Bucking that negativity, electronics and appliance retailers bounced back strongly in March, reversing weak results in the preceding month.
The report on retail sales may have been disappointing, but it was expected. The bigger surprise of the day comes from the March reading on consumer inflation. The Consumer Price Index fell unexpectedly, declining by 0.3 percent for the month – the index’s first monthly decline since February 2016. Core inflation also fell unexpected by 0.1 percent – its first monthly drop since January 2010.
With the year-on-year measure dipping from 2.7 percent to 2.4 percent, investors are left to speculate over whether or not the pace of inflation may be cresting. Surging oil prices were one significant catalyst to rising inflation in the past year, but not the only one. Rising service sector costs, including the key cost of shelter, have been running above 3 percent for some time. It will take some time to determine whether March was a brief pressure release in a continued uptrend for consumer prices or the first step toward greater price stability.
What do these reports mean for consumers? For a group that is seemingly quite confident in the aftermath of the election of President Trump and the potential for a pro-growth policy agenda to jump start the economy, there’s still limited tangible evidence that they are so exuberant that they are willing to spend more confidently. Despite continued job creation, ample evidence of further tightening in labor market conditions (that should lead to stronger wage growth) and generally positive performance for equity investors – all of which should be supportive of spending – households are seemingly still watching their purse strings more cautiously than might otherwise be expected under the circumstances.
Consumers have overwhelmingly been the primary engine for the economy in recent years. Weaker spending growth will undoubtedly weigh on first quarter growth expectations, and will be watched closely in the coming months in hopes of a spring rebound.