Retail sales contracted in March for the second time in three months, a sign the American economy may have stumbled at the end of the first quarter.
Retail sales fell 0.4 percent during the month, the Commerce Department said on Friday. That was below analysts' expectations that sales would be flat.
The sales data supports the view that the U.S. economy continues to struggle and hasn't gained as much momentum has analysts believed just a few weeks ago.
At the same time, a separate report showed wholesale prices fell sharply in March due to lower gasoline costs. That will come as a relief to consumers beset by high prices at the pump, and could help the U.S. Federal Reserve maintain its very accommodative monetary policy.
Readings for retail sales have been volatile so far this year, making it difficult to know whether the weakness in March was due to a tax hike that went into effect at the start of the year or to temporary factors related to the weather.
Retail sales advanced 1 percent in February, according to revised readings from the government.
Stripping out cars, gasoline and building materials, sales fell 0.2 percent in March. This core measure corresponds closely with the consumer spending component of gross domestic product.
In a sign that higher taxes may have bitten more into family budgets than previously thought, the government revised lower past core retail sales figures to show a 0.3 percent gain in February and flat sales in January.
"The miss in retail sales sends concerns about the impact of higher payroll taxes," Omer Esiner, a market analyst at Commonwealth Foreign Exchange.
Prior reports on retail sales had made consumers look surprisingly resilient despite tax increases that kicked in on January 1. A tax on payrolls climbed for all workers, while income tax rates rose for the nation's most wealthy.
Fiscal policy tightened further in March when the federal government began across-the-board spending cuts known in Washington as the "sequester," part of Washington's efforts to shrink the budget deficit.
Non-partisan researchers working for the U.S. Congress estimate Washington's austerity drive will subtract about 1.5 percentage points from economic growth this year.
"The worry is the full reaction to the expiration of the payroll tax cut and to the sequester budget cuts won't be evident until sometime this quarter," said Cary Leahey, a senior advisor at Decision Economics in New York.
Many economists have also noted the loss of economic momentum in many economic indicators for March could have been due to a warm winter, which may have led companies and consumers to pull forward spending.
Indicators from retail sales and hiring to factory manager confidence were much stronger in February, and a chilly March may have then dulled activity.
It is also plausible that economic reports have not accurately adjusted for the shift in timing for the Easter holiday, which fell in March of this year after falling in April of 2012.
The weakness in March retail sales was broad based, with car sales down 0.6 percent and receipts from electronics and appliance stores down 1.6 percent. Sales at clothing stores rose just 0.1 percent.
A separate report showed U.S. producer prices recorded their biggest drop in 10 months in March as the cost of gasoline tumbled.
The Labor Department said its seasonally adjusted producer price index fell 0.6 percent last month, the largest drop since May, after increasing 0.7 percent in February.
Economists polled by Reuters had expected prices received by the nation's farms, factories and refineries to fall only 0.2 percent.
In the 12 months through March, wholesale prices were up 1.1 percent, the smallest rise since July. Prices had increased 1.7 percent in February.
Underlying inflation pressures also were muted, with wholesale prices excluding volatile food and energy costs rising 0.2 percent for a third straight month.
In the 12 months through March, the so-called core PPI increased 1.7 percent after rising by a similar margin in February.
The benign inflation environment could strengthen the argument for the Fed to keep monetary policy loose as it tries to steer the economy towards faster growth, despite divisions among policymakers over continued asset purchases.
Minutes of the Fed's March 19-20 meeting released on Wednesday showed the U.S. central bank was moving closer to ending its monthly $85 billion purchases of mortgage and Treasury bonds to keep rates low and spur faster job growth.