U.S. retail sales, inflation data highlight weak first quarter growth

Fri Apr 14, 2017 12:33pm EDT
 
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. retail sales fell for a second straight month in March and consumer prices dropped for the first time in just over a year, underscoring the magnitude of the loss of economic growth momentum in the first quarter.

But with the labor market near full employment, Friday's weak reports failed to change views that the Federal Reserve will raise interest rates again in June. Economists expect a rebound in both retail sales and monthly inflation.

"For the Fed, the underlying momentum is more important in terms of policy decisions, and that looks to be strong, supported by a tightening labor market, rising incomes and high consumer confidence," said Gregory Daco, head of U.S. macroeconomics at Oxford Economics in New York.

The Commerce Department said retail sales dropped 0.2 percent last month after a 0.3 percent decrease in February, which was the first and biggest decline in nearly a year. Compared to March last year retail sales increased 5.2 percent.

Economists had forecast retail sales slipping 0.1 percent. Excluding automobiles, gasoline, building materials and food services, retail sales rebounded 0.5 percent last month after falling 0.2 percent in February.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Despite last month's rebound in core retail sales, consumer spending likely braked sharply in the first quarter after growing at a brisk 3.5 percent annualized rate in the final three months of 2016. The apparent slowdown in consumption is partly blamed on the late disbursement of income tax refunds by the government as it sought to combat fraud.

The Atlanta Fed lowered its first-quarter GDP estimate by one-tenth of a percentage point to a 0.5 percent rate, which would be the weakest performance in three years. The economy grew at a 2.1 percent pace in the fourth quarter.   Continued...

 
FILE PHOTO: A shopper passes a "Sale" sign at Quincy Market in downtown in Boston, Massachusetts, U.S. January 11, 2017.   REUTERS/Brian Snyder