Retail sales fall in March as Americans cut back on buying cars

U.S. retail sales fell last month as people cut back on their car purchases, the latest sign that consumers are reluctant to spend freely.

Sales at retail stores and restaurants fell by a seasonally adjusted 0.3% in March, the Commerce Department said Wednesday, following a flat reading in February and a drop in January.

Americans have been more cautious about spending this year than most economists expected, despite steady job gains and lower gas prices. That’s a key reason analysts now think the economy barely expanded in the first quarter.

March’s decline was largely driven by a sharp drop in auto sales, which plunged 2.1%. That was the steepest fall in more than a year. Sales at restaurants and clothing stores also retreated.

Sales at gas stations rose the most since June, reflecting recent increases in oil and gas prices. The average nationwide price for a gallon of gasoline stood at $2.06 on Tuesday, according to AAA, up 14 cents since mid-March. Still, gas prices remain far below their levels one year ago.

Excluding autos and gas, sales trends look healthier, rising 0.1% last month and 0.6% in February. Americans spent more in March at furniture, electronics and home supply stores. General merchandise stores, which include chains such as Wal-Mart and Target, also posted higher sales.

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But a category that includes online and catalog sales declined slightly, and spending at restaurants and bars fell 0.8%.

The retail report provides the first indication each month of Americans’ spending, which drives 70% of the economy. Retail sales account for only about one-third of all spending, with services such as haircuts and Internet access making up the other two-thirds.

Steve Murphy, an economist at forecasting firm Capital Economics, said that spending on services has growth at a 3% clip this year, offsetting some of the weakness in retail.

“With employment gains still healthy and real incomes growing at a solid pace, we expect consumption growth to rebound further over the first half of the year,” Murphy said in a note to clients.

The economy is increasingly dependent on consumer spending to drive growth this year. Weak overseas economies and a strong U.S. dollar have dragged down exports, and business spending on new machinery and equipment has been lackluster.

Yet so far, Americans have been reluctant to spend. That’s left the economy stumbling in the first quarter, with analysts at JPMorgan Chase forecasting growth of just 0.2% at an annual rate.

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