Americans in recent weeks have cut spending on everything from dining out to electronics to cars, suggesting a renewed skepticism in the economy after a resilient start to the year.
The question now: Is the consumer pullback a stutter or something more serious?
Cash-register sales in March fell by 0.4%, with weakness evident in many discretionary categories, the government said Friday in its monthly retail report. And the latest Thomson Reuters/University of Michigan reading on consumer sentiment fell to the lowest level in nine months. Those reports came a week after the government reported that overall hiring slowed last month, with some industries, including retailers, cutting jobs.
The signs of consumer distress come despite what was an otherwise solid first quarter. Forecasters surveyed by The Wall Street Journal estimate the U.S. economy grew around a healthy 3% pace in the first quarter. And the stock market has been setting records almost daily.
Friday's retail-sales report showed consumers scrimping in many areas. March sales in categories such as electronics and department stores fell more than 1% from the prior month. Sales also dropped at food and beverage stores and health- and personal-care establishments. A 2.2% drop in sales at gas stations was driven in part by lower fuel prices, which can ultimately be a good thing for consumers. Meanwhile, downward revisions to January and February retail data suggest consumers weren't as resilient as first thought earlier this year.
Some retailers say the recent drop in spending is likely a blip, with consumers eventually adjusting to the smaller paychecks that stem from the January payroll tax increase and resuming springtime purchases.
The latest retail report will weigh on first-quarter gross domestic product. Core sales, which is directly related to GDP and excludes building materials, car dealers and gasoline, dropped 0.2% in March from February.
Stocks ended flat Friday following the disappointing readings on consumers and signs of weakness in two big banks' mortgage business. Mortgage refinancing has provided a benefit to Americans in recent months, as more people take advantage of low rates to reduce their monthly payments and free up cash to spend elsewhere.
Loan growth across the industry has been softer this quarter. New-home purchases are increasing and fewer charge-offs for credit cards suggest that more broadly consumers are "healthier and more confident.
One encouraging sign in Friday's retail report was a rise in housing-related spending. That includes a 0.9% rise in furniture and 0.1% rise in building materials and garden supplies. That shows retailers are benefiting from the recovering housing market, which economists expect to fuel broader growth this year.
Sheila McKinney
