Business World

Thursday 27 July 2017

Retail sales and consumer prices in the US slump in March

Traders work on the floor of the New York Stock Exchange (NYSE)
Traders work on the floor of the New York Stock Exchange (NYSE)

US retail sales fell for a second straight month in March and consumer prices dropped for the first time in just over a year, supporting views that the economy lost significant momentum in the first quarter.

But with the labour market near full employment, the decline in sales and consumer prices reported by the US government yesterday is likely temporary and probably does not change expectations that the Federal Reserve will raise interest rates again in June.

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

Economists polled by Reuters had forecast retail sales slipping 0.1pc last month. Excluding cars, petrol, building materials and food services, retail sales rebounded 0.5pc after falling 0.2pc in February. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Despite last month's increase in core retail sales, consumer spending likely braked sharply in the first quarter after growing at a brisk 3.5pc annualised 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 is forecasting GDP rising at a 0.6pc rate in the first quarter.

This would be the weakest performance in three years and follows a 2.1pc growth pace in the fourth quarter.

With job growth averaging 178,000 per month in the first quarter, the anticipated slowdown in GDP likely understates the health of the economy in the United States.

Reuters

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