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U.S. March Retail Sales Rise 0.3%, Less Than Forecast (Update1)

U.S. March Retail Sales Rise 0.3%, Less Than Forecast

April 13 (Bloomberg) -- U.S. retail sales rose a smaller-than- forecast 0.3 percent in March, evidence higher gasoline prices are taking a bigger bite out of consumers' incomes and their willingness to spend on other goods.

The rise to $339.3 billion followed a 0.5 percent increase in February, the Commerce Department said today in Washington. Sales were forecast to rise 0.8 percent, according to a Bloomberg News survey. Excluding autos, sales rose 0.1 percent, the smallest gain since April of last year. Also subtracting receipts at service stations, purchases dropped 0.1 percent.

``The near-term outlook is now cloudy,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. ``Gas prices are depressing sentiment sharply.''

The decline in sales excluding autos and gasoline was the first since April 2004, the beginning of what Federal Reserve Chairman Alan Greenspan said last year was a ``soft patch'' in the economy. The specter of even higher fuel costs in months to come raises concern incomes will fail to keep pace, threatening to slow consumer purchases and economic growth.

Economists expected retail sales to rise to $341.3 billion last month following a previously reported 0.4 percent gain in February, based on the median forecast of 73 estimates in a Bloomberg News survey. Sales excluding automobiles were expected to rise 0.5 percent to $264.3 billion following a previously reported 0.4 percent February increase.

The Treasury's 4 percent note maturing in February 2015 rose 5/32, pushing down the yield 2 basis points to 4.33 percent, at 8:38 a.m. in New York.

Autos

The gain last month was led by sales of motor vehicles, building materials and fuel. Purchases declined at department stores, clothing outlets and retailers of furniture and electronics. Retail sales amount to about half of all consumer spending, which in turn accounts for about two-thirds of the economy.

Sales at automobile dealerships and parts stores rose 0.7 percent last month after rising 0.1 percent.

The rebound in sales last month hasn't been enough to keep U.S. automakers from announcing plans to reduce production in coming months. Ford Motor Co. said it will probably cut output by 1.2 percent for the current quarter compared to the same period last year, while General Motors Corp. is planning to build 10 percent fewer cars and light trucks.

Gasoline

The plans come after the automakers cut production in the first three months of the year as Toyota Motor Corp. and other Asian automakers increased U.S. sales, market share and production.

Sales at filling stations rose 2.1 percent last month, the biggest rise since October, following a 1.1 percent rise in February. A jump in gasoline prices played a hand in boosting sales.

The average price of all grades of gasoline at the pump rose to $2.12 a gallon in March, compared with $1.95 a gallon the previous month, according to figures from the Energy Department. The price has continued to rise this month, reaching a record $2.32 a gallon in the week ended April 11.

Stores selling building materials and garden supplies showed a 1.5 percent rise in sales last month following a 0.4 percent decline in February.

GDP

Sales in the retail group used to calculate gross domestic product figures on consumer spending, which excludes autos, gasoline and building materials, declined 0.3 percent last month following a 0.6 percent February increase. The government uses data from other sources to calculate the contribution from the three categories excluded.

Sales at general merchandise stores, which include department stores, fell 0.7 percent last month after rising 0.7 percent. Sales at clothing and accessory stores dropped 1.9 percent after a 1.1 percent increase. Department stores sold 2 percent less merchandise.

Cooler weather in the eastern U.S. last month may have helped damp sales of spring apparel, according to a report from the International Council of Shopping Centers last week. The weather and gasoline prices led to a ``mixed'' performance for nation's chain stores, the report said.

Same-Store Sales

Sales for the 71 chains tracked rose a smaller-than-expected 4.1 percent last month compared with March 2004. When adjusted for an earlier Easter holiday this year, which occurred March 27 compared with April 11 in 2004, the increase would have been 2.5 percent, the report said. Discounters, including Wal-Mart Stores Inc. and Target Corp., posted strong gains while department stores and luxury chains floundered, according to the report.

Sales at electronics and appliance stores dropped 0.3 percent, while furniture sales declined 0.6 percent, the Commerce Department's report showed. Purchases at sporting goods, hobby, book and music outlets increased 0.8 percent while sales at food and beverage stores were unchanged. Sales at restaurants and drinking places fell 0.7 percent, the largest decline since December 2003.

Non-store retailers, which include online purchases and catalog sales, rose 1.2 percent in March after a 0.6 percent decrease a month earlier.

``There is great uncertainty relative to gas prices, interest rates from a consumer standpoint,'' said Philip Marineau, chief executive at Levi Strauss & Co., the maker of Levi's jeans and Dockers pants, in an interview yesterday. The San Francisco-based apparel maker yesterday said it had a first-quarter profit on higher sales of Levi's in Europe and Asia and lower costs. Sales in North America dropped.

Greenspan told the House Budget Committee in September of last year that the economy was improving after a ``soft patch'' in late spring 2004. That year, growth slowed to a 3.3 percent annual rate in the second quarter from 4.5 percent the previous three months as gasoline prices increased.

Employment

Employers added 110,000 workers to their payrolls in March, barely half the number expected by economists, as rising costs crimped hiring, a report form the Labor Department earlier this week showed. Average hourly earnings were up 2.6 percent in the 12 months ended in March, less than the 3 percent increase in the index of consumer prices, the broadest measure of inflation, over the same period.

An index of economic optimism fell this month to the lowest level since at least February 2001, according to a report yesterday from Investors Business Daily and TechnoMetrica Market Intelligence. The index fell to 47.4 in April, down 5.6 points from a month earlier and the lowest since they began tracking optimism four years ago. A reading over 50 indicates a positive outlook while a reading below 50 signals a negative outlook.

Tax Cuts

Consumers this year won't be able to count on more tax cuts or money from refinancing, according to economist such as Kevin Harris, chief economist at Informa Global Markets Inc. in New York.

An index of applications to refinance mortgages have averaged 2116 so far this year, down 9.9 percent from last year's average, according to figures from Mortgage Bankers of America. As recently as March of last year, the index was as high as 4989.

Consumer spending last quarter probably grew at a 3.5 percent annual pace and the economy expanded at a 4 percent rate, according to the median forecast of economists surveyed by Bloomberg News from April 1 to April 7. Spending is expected to slow to an average 3.2 percent rate in the last nine months of the year, according to the survey.

By comparison, spending rose at an annualized 4.2 percent pace in the last three months of 2004 and quarterly gains have averaged 3.4 percent in the last three decades.

Yesterday, economists such as John Ryding at Bear Stearns & Co. and David Greenlaw at Morgan Stanley reduced their forecasts for first-quarter economic growth after the Commerce Department said the nation's trade deficit in February widened to a record.


To contact the reporter on this story:
Carlos Torres in Washington [e-mail].

To contact the editor responsible for this story:
Kevin Miller at [e-mail].


LINK: http://quote.bloomberg.com/apps/news?pid=10000006&sid=aeT7cbDX1rpk&refer=home