Consumers, hit by higher gasoline costs, cut back spending on clothes and many other items last month, raising concerns about whether the economy might be entering another “soft patch” similar to last year’s slowdown.
The Commerce Department reported Wednesday that retail sales rose a disappointing 0.3 percent in March, far below expectations for a 0.8 percent rise.
What strength there was came mainly from auto sales, which climbed 0.7 percent in March. Excluding autos, retail sales rose by just 0.1 percent last month, the weakest showing in nearly a year, since a 0.1 percent drop in April 2004.
That decline occurred as the U.S. economy was entering what Federal Reserve Chairman Alan Greenspan termed a “soft patch” as growth slowed abruptly during the spring of last year. Consumers at that time, too, were hit by higher energy bills, and they responded by abruptly cutting back their spending in other areas.
Analysts said the same thing could be occurring again this year although more data will be needed to confirm that.
“The higher price of gasoline may just be breaking consumers’ drive to spend,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pa. “There were major cutbacks in spending on clothing, furniture and appliances.”
Bill Cheney, chief economist at John Hancock Services in Boston, said the economy could be entering another slowdown induced by higher energy prices, but he cautioned against reading too much into a single month’s report.
“Obviously the weakness in March is a concern, but it is putting too much weight on one month’s report to suggest this is a new trend,” Cheney said.
The 0.3 percent rise in retail sales followed a stronger 0.5 percent gain in February and was the smallest advance since a tiny 0.1 percent rise in January, which had followed a 1.3 percent surge in December.
The strength in auto sales was offset by a 0.7 percent decline at general merchandise stores, a category that includes department stores and an even larger 1.9 percent drop at clothing specialty stores, weakness that was blamed in part on cold weather that did not put consumers in the mood to buy new spring clothes even though Easter came early this year.
Some analysts said the Commerce Department may have overcompensated for the early Easter in its seasonal adjustments and thus made the March performance look worse than it actually was.
The consumer has been the driving force powering the economy in the three years since the 2001 recession as Americans, bolstered by successive rounds of tax cuts and cheap credit, have spent with abandon.
Analysts say continued gains in employment should produce further spending increases this year. But those employment gains will have to offset the waning impact of tax cuts and rising interest rates. The Federal Reserve is expected to continue with its nearly yearlong campaign of raising interest rates to make sure the rebounding economy does not produce unwanted inflation.
The strong 0.7 jump in sales of autos and auto parts in March followed a much weaker 0.1 percent increase in February.
The 1.9 percent drop in sales at clothing stores and the 0.7 percent drop at general merchandise stores, the category that covers big department stores, were both the largest declines since April 2004.
Sales also fell by 0.6 percent at furniture stores and were down 0.3 percent at electronic and appliance stores.
Bucking the downward trend, sales at hardware stores were up 1.5 percent, sales at sporting goods stores rose by 0.8 percent and service stations posted a huge 2.1 percent increase, a rise that reflected in large part higher gasoline prices.
The weakness in clothing sales supported earlier reports that the nation’s large retail chains had mixed sales in March. Some of the largest retailers such as Wal-Mart Stores Inc. and Limited Brands posting disappointing results while some youth-oriented retailers such as Abercrombie & Fitch Co. and Bebe Stores surprised analysts on the upside.