US retail sales up modestly; growth forecasts pared

US retail sales posted their smallest gain in nine months in March, as auto sales plunged and consumers felt the sting of higher gas prices. In another sign that economic growth slowed in the first quarter, the government on Wednesday separately reported a sharp slowdown in the accumulation of inventories by businesses in February.
Economists, who have steadily lowered growth forecasts as first quarter data has come in, swiftly cut them again. Still, they expect the recovery to regain momentum later this year. Retail sales advanced 0.4 percent in March, the Commerce Department said on Wednesday. Excluding gasoline, retail sales were up a scant 0.1 percent.
Economists now see first-quarter gross domestic product growth as low as a 1.5 percent annual rate. Earlier this year, many economists were expecting a pace of around 3.5 percent. The economy grew at a 3.1 percent rate in the final three months of 2010. Business inventories are a key component of GDP, and less restocking by business also implies a slower pace of production.
Gasoline prices, which accounted for the bulk of the retail sales increase in March, have been a big factor restraining growth. Bad weather early in the year and a still-weak labour market have also weighed on the economy. Receipts at gasoline stations, which accounted for about 1/10th of overall retail sales last month, increased 2.6 percent after rising 2.4 percent in February. Gasoline prices rose 35 cents to an average $3.62 a gallon last month, and the US Energy Information Administration warned on Tuesday that prices could increase to about $4 a gallon nation-wide this summer.
Upward revisions to January and February sales data took some of the sting out of the report, leaving consumer spending growth tracking at about a 2 percent rate in the first quarter, according to economists. Consumer spending, which accounts for 70 percent of US economic activity, grew at a brisk 4 percent pace in the final three months of last year. In a separate report, the Commerce Department said business inventories rose 0.5 percent in February after advancing 1 percent in January.
Businesses sharply scaled back on restocking in the fourth quarter of 2010, resulting in inventories slicing 3.4 percentage points off GDP growth during the period. Economists had expected a faster pace of restocking to help lift growth early this year, but the February data tempered their expectations. A 1.7 percent drop in auto sales weighed on the March retail figures. Excluding autos, sales were up 0.8 percent. Elsewhere, clothing store receipts rose 0.6 percent last month, while sales at sporting goods, hobby, book and music stores edged up 0.1 percent.
Despite being squeezed by high gasoline prices, consumers splurged on furniture - which registered the largest gain since July 2004 - and on electronics and appliances. Sales of building materials and garden equipment were also solid. So-called core retail sales - which exclude autos, gasoline and building materials - rose 0.4 percent after a 1.1 percent gain in February.