Consumer spending rises 0.4% in March

Retail sales posted their smallest gain in nine months in March, as auto sales plunged and consumers felt the sting of higher gas prices.

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 reported a sharp slowdown in the accumulation of inventories by businesses in February.

Economists, who have steadily lowered growth forecasts as first-quarter data have come in, swiftly cut them again. Still, they expect the recovery to regain momentum later this year.


“The recovery and spending in the first quarter shaped up to be a bit of a disappointment, partly because of energy prices, and we are limping into this (second) quarter,” said Ryan Sweet, a senior economist at Moody’s Analytics.

Retail sales advanced 0.4% in March, the Commerce Department said Wednesday. Excluding gasoline, retail sales were up a scant 0.1%.

Economists now see first-quarter gross domestic product growth as low as a 1.4% annual rate. Earlier this year, many economists were expecting a pace of around 3.5%. The economy grew at a 3.1% 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. The Commerce Department said business inventories rose 0.5% in February after advancing 1% in January.


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 labor 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% after rising 2.4% in February.

Gasoline prices rose 35 cents to an average $3.62 a gallon last month, and the U.S. Energy Information Administration warned Tuesday that prices could increase to about $4 a gallon nationwide 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% rate in the first quarter, according to economists.

Consumer spending, which accounts for 70% of U.S. economic activity, grew at a brisk 4% pace in the final three months of last year.

A 1.7% drop in auto sales weighed on the March retail figures. Excluding autos, sales were up 0.8%.

Elsewhere, clothing store receipts rose 0.6% last month, while sales at sporting goods, hobby, book and music stores edged up 0.1%.

Despite 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% after a 1.1% gain in February. Core sales correspond most closely with the consumer spending component of the government’s gross domestic product report.

Get our weekly California Inc. newsletter