US retail sales fell more than expected in March

WASHINGTON (Reuters) – U.S. retail sales fell more than expected in March as consumers cut back on purchases of motor vehicles and other big-ticket items, saying the economy was losing steam at the end of the first quarter due to higher interest rates.

Retail sales fell 1.0% last month, the Commerce Department said Friday. Data for February was revised to show retail sales fell 0.2% instead of 0.4%. Economists polled by Reuters had forecast sales falling 0.4%, with estimates ranging from a 0.3% gain to a 1.5% decline.

Retail sales are mostly merchandise, usually purchased on credit, and not adjusted for inflation. The second consecutive monthly decline followed a sharp rise in January.

Economists said changes in spending patterns and higher prices at the end and beginning of the year made the data difficult to read clearly.

There was no consensus that tighter credit conditions in March, following the failure of two regional banks, hurt retail sales, although data from Citi Credit Cards showed a decline in retail spending that month.

The slowdown in retail sales is largely attributed to the Federal Reserve’s year-long campaign of interest rate hikes, which has kept inflation under control by cooling domestic demand. Last week’s reports showed job growth and service sector activity slowed in March, while manufacturing remained sluggish.

However, the economy has not slowed fast enough to prevent the Fed from raising rates one more time in May, before an expected pause in June in the Fed’s fastest monetary policy tightening cycle since the 1980s. The central bank has raised its policy rate by 475 basis points since last March from near zero to the current range of 4.75%-5.00%.

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Excluding automobiles, gasoline, construction materials and food services, retail sales fell 0.3% last month. This core retail sales rose an uncorrected 0.5% in February.

Core retail sales correspond most closely to the consumer spending component of GDP. Despite March’s decline, gains in January and February put consumer spending firmly on track to accelerate in the first quarter.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at its slowest pace in 2-1/2 years in the fourth quarter. Economic growth estimates for the first quarter are mostly below the 2% annual rate. The economy expanded at a pace of 2.6% in the October-December quarter.

(Reporting by Lucia Mutigani; Editing by Chisu Nomiyama)

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