Retail sales fall 0.4 percent in March

WASHINGTON Sales at U.S. retailers fell in March from February, indicating that higher taxes and weak hiring may have made some consumers more cautious about spending.

Retail sales declined a seasonally adjusted 0.4 percent last month, the Commerce Department said Friday. That followed a 1 percent gain in February and a 0.1 percent decline in January. Both February and January figures were revised lower.

Consumers cut back across a wide range of categories last month. Sales at auto dealers dropped 0.6 percent. Gas station sales dropped 2.2 percent, partly reflecting lower prices. The retail figures aren't adjusted for price changes.

Excluding the volatile categories of autos, gas and building materials, core sales dropped 0.2 percent in March. That followed a gain of 0.3 percent in February. Department stores, electronics retailers and sporting goods outlets all reported lower sales.

The retail sales report is the government's first look at consumer spending, which drives about 70 percent of economic activity.

Many economists still expect economic growth accelerated to an annual rate of roughly 3 percent in the January-March quarter, despite the softer retail spending in March. But many expect weaker spending will slow growth in the April-June quarter.

Paul Dales, senior economist at Capital Economics, said the decline in retail sales suggests higher Social Security taxes and February's spike in gas prices forced consumers to pull back in March.

And when factoring in slower hiring and other weak data for the month, "the economy appears to have lost some momentum," Dales said. "But with gasoline prices now falling, we don't expect too sharp a slowdown."

The cost of a gallon of gas averaged $3.56 nationwide Thursday, down from $3.70 a month earlier.

The increase in Social Security taxes, which kicked in on Jan. 1, has lowered take-home pay this year for nearly all workers. Someone earning $50,000 has about $1,000 less to spend in 2013. A household with two high-paid workers has up to $4,500 less.

Growth for the rest of the year will depend on what happens with hiring.

Employers added only 88,000 jobs last month, much lower than the average gain of 220,000 in the previous four months. But hiring may pick up in the coming months. Weekly unemployment benefit applications fell sharply last week, suggesting that companies are cutting fewer jobs.

There were a few positive signs in the retail spending report. Furniture stores reported a 0.9 percent sales increase, suggesting the housing recovery is still encouraging more spending. And sales at hardware and garden supply stores ticked up 0.1 percent, despite an unseasonably cold March.

But sales at general merchandise stores, which include major department stores such as Macy's and big discount stores such as Wal-Mart and Target, dropped 1.2 percent.

A private survey of 15 major retailers released Thursday showed that shoppers spent cautiously last month, held back by the coldest March in seven years. Still, sales at stores open for at least a year rose 1.6 percent in March, according to the International Council of Shopping Centers.

Auto sales also slowed slightly in March, to an annual pace of 15.3 million. That was down from 15.4 million in February.