* Retail sales fall 0.4 percent in March
* Core sales drop 0.2 percent
* Wholesale prices post biggest drop in 10 months
* Consumer sentiment hits 9-month low in April
By Jason Lange
WASHINGTON, April 12 U.S. retail sales
contracted in March for the second time in three months and
consumer confidence tumbled in April, a sign tax hikes early
this year stole momentum from the economy.
Sales fell 0.4 percent in March, missing analysts'
expectations for a flat reading, Commerce Department data showed
The data suggests consumer spending was considerably weaker
in the first quarter than analysts previously believed, and many
cut economic growth forecasts for the period.
Prior reports had made consumers look relatively resilient
despite an increase in tax rates in January on most Americans.
"The payroll tax increase is hurting," said Ian Shepherdson,
an economist at Pantheon Macroeconomic Advisors in White Plains,
Readings for sales have been volatile this year, making it
difficult to know how much of the recent weakness has been due
to higher taxes and how much might be because of temporary
factors related to the weather.
But supporting the view that tighter fiscal policy is the
culprit, a closely watched gauge of consumer spending
unexpectedly fell in March and the government revised the
readings for January and February sharply lower.
These so-called core sales, which strip out cars, gasoline
and building materials, fell 0.2 percent last month. This
measure corresponds closely with the consumer spending component
of the government's measure of gross domestic product.
"The miss in retail sales sends concerns about the impact of
higher payroll taxes," said Omer Esiner, a market analyst at
Commonwealth Foreign Exchange.
Economists also cited an increase in gasoline prices earlier
this year as a factor holding back sales.
Forecasting firm Macroeconomic Advisers lowered its estimate
of first-quarter economic growth by three tenths of a percentage
point to a 3 percent annual rate.
That would be much stronger than the 0.4 percent rate
clocked in the fourth quarter, although much of the acceleration
is expected to come from a temporary build up of inventories.
Reinforcing that expectation, a separate Commerce Department
report showed retail inventories rose 0.4 percent in February
when stripping out cars.
Growth is expected to slow sharply in the second quarter
largely because fiscal policy tightened further in March, when
the federal government began across-the-board spending cuts
known in Washington as the "sequester," part of Washington's
efforts to shrink the budget deficit.
U.S. stocks declined on the weak retail sales data and as
results from major banks failed to impress investors. Prices for
U.S. Treasuries rose, while the dollar declined against the yen.
A separate report suggested the government's belt tightening
was damaging consumer sentiment.
The Thomson Reuters/University of Michigan's preliminary
reading on the overall index of consumer sentiment fell to 72.3
in April, the lowest since July 2012 and below economists'
Over the entire year, Washington's austerity drive could
subtract about 1.5 percentage points from economic growth this
year, according to an estimate by the non-partisan Congressional
"The worry is the full reaction to the expiration of the
payroll tax cut and to the sequester budget cuts won't be
evident until sometime this quarter," said Cary Leahey, a senior
advisor at Decision Economics in New York.
Economists said the loss of momentum evident in many
economic indicators for March could reflect a warm winter, which
may have led companies and consumers to pull forward spending,
and a chilly March may have then dulled activity.
Indicators from retail sales and hiring to factory manager
confidence were much stronger in February.
A fourth report showed wholesale prices fell sharply in
March due to lower gasoline costs. That will come as a relief to
consumers beset by high prices at the pump, and could help the
U.S. Federal Reserve maintain its very accommodative monetary
Producer prices fell 0.6 percent in March, their biggest
drop in 10 months, as gasoline prices tumbled, the Labor
Department said. Economists polled by Reuters had expected
prices received by the nation's farms, factories and refineries
to fall only 0.2 percent.
In the 12 months through March, wholesale prices were up
1.1 percent, the smallest rise since July. Prices had increased
1.7 percent in February.
The benign inflation environment could strengthen the
argument for the Fed to keep monetary policy loose as it tries
to steer the economy towards faster growth, despite divisions
among policymakers over continued asset purchases.
"This is not the time to take away the accommodation,"
Boston Federal Reserve Bank President Eric Rosengren told CNBC
television in an interview.
Minutes of the Fed's March 19-20 meeting released on
Wednesday showed the central bank was moving closer to ending
its monthly $85 billion purchases of mortgage and Treasury bonds
to keep rates low and spur faster job growth.