– Retail sales in March 2013 fell 0.4% and compared to expectations of unchanged activity for the month.
– This followed a solid increase in February of 1.0% although this was revised downward from a previous estimate of 1.1%.
– As expected, some of the decline reflected weakness in both the motor vehicle component (-0.6%) and gasoline stations (-2.2%).
– Excluding autos and gasoline stations, sales fell 0.1% following a 0.3% gain in February.
Retail sales in March dropped 0.4% in the month and compared to expectations of unchanged activity. The decline followed a solid 1.0% gain in February although this was revised downward from a previously estimated 1.1%. Some slowing in activity had been expected given earlier indications of some modest weakening in unit auto sales and declining gasoline prices that were anticipated to weigh on gas station receipts. Such was confirmed in today’s report with the motor vehicle component down 0.6% and gas station receipts lower by 2.2%.
The so called ‘control’ measure, which excludes sales at motor vehicle dealerships, gasoline stations and building material stores, which rose 0.1% in March, fell 0.2% in the month following a 0.3% gain in February that was revised downward from a previously estimated gain of 0.4%. A number of components showed declines in the month including electronics and appliances (1.6%), general merchandise stores (1.2%), and sporting goods stores (0.8%). Some offset was provided by a 0.9% gain in the furniture component that likely reflected the ongoing rebound in new housing construction.
The slowing in March retail sales growth does not alter our view that the pace of first-quarter 2013 real consumer spending will likely strengthen to 3% from the 1.8% that occurred in the fourth quarter of 2012 and benefitted from strength in earlier months. It also likely presages the pace of consumer spending moderating to 2.0% in the second quarter of 2013. This in turn is expected to be mirrored in second-quarter 2013 GDP growth, with our forecast assuming a slowing to 1.9% from an expected 3% increase in first quarter of 2013. The March 1 introduction of mandated US government expenditure cuts, i.e., sequestration, is likely contributing to both households and businesses being more cautious about their spending. We, however, assume that the hit to the economy will be short lived with GDP growth during the second half of 2013 moving closer to 3%. To help support this rebound, Fed policy is expected to remain highly accommodative with asset purchases continuing through the end of this year and the fed funds remaining within its current range of 0% to 0.25% into 2015.
In a separate release out this morning, producer prices in March fell a greater than expected 0.6%, which almost fully reversed the 0.7% gain in February. Most of the weakness was concentrated in the energy component, which dropped 3.4% in the month. This decline more than offset a 0.8% jump in food prices and a 0.2% gain in core prices. On a year-over-year basis, the overall producer price increase moderated in March to 1.1% from 1.7% in February although the annual rate for core prices remained unchanged at 1.7%.
RBC