Retail Sales Unchanged; Import Prices Weak in April

Retail Sales
Alan Diaz/APShoppers at Bayside Marketplace in downtown Miami.

By Lucia Mutikani

WASHINGTON -- U.S. retail sales were flat in April as households cut back on purchases of automobiles and other big-ticket items, indicating the economy was struggling to rebound strongly after barely growing in the first quarter.

The weak retail sales report from the Commerce Department, and other data released Wednesday showing the 10th straight month of declining import prices in April, suggest little urgency for the Federal Reserve to start raising interest rates.

%VIRTUAL-WSSCourseInline-876%"In terms of the Fed, the sluggish spending and economic growth performance will continue to argue for a later start to liftoff, essentially ruling out a mid-year hike," said Millan Mulraine, deputy chief economist at TD Securities in New York.

While March's retail sales were revised higher to show a 1.1 percent increase instead of the previously reported 0.9 percent rise, that wasn't enough to offset the general weak tone of the report. Economists had forecast sales up 0.2 percent in April.

Futures markets continued to show that traders don't expect an interest rate hike until December at the earliest. The dollar fell against the euro and the yen, while prices for U.S. Treasury debt rose. U.S. stocks were trading higher.

Retail sales excluding automobiles, gasoline, building materials and food services were also unchanged after an upwardly revised 0.5 percent increase in March.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Economists had forecast core retail sales rising 0.5 percent in April after a previously reported 0.4 percent increase in March.

Savings From Cheaper Gas

Retail sales have trended weaker despite households getting a massive windfall from lower gasoline prices. Consumers appear to have saved much of the money from the cheaper gasoline.

"The continuing weakness of retail sales in April brings into question our working assumption that the soft patch through the winter months was largely due to the unseasonably cold temperatures," said Paul Ashworth, chief economist at Capital Economics in Toronto.

Retailer Macy's (M) said net income fell to $193 million in the first quarter ended May 2 from $224 million, blaming the decline on cold weather and a strong dollar, which put a squeeze on spending by tourists.

The retail sales data added to employment and manufacturing reports in suggesting that while the economy was regaining its footing at the start of the second quarter, it lacked enough vigor to convince the Fed to tighten monetary policy before the end of the year.

The economy was walloped earlier in the year by a mix of bad weather, disruptions at ports, the strong dollar and deep spending cuts by energy firms. The government reported last month that GDP expanded at a 0.2 percent annual pace in the first three months of the year.

Economic Sluggishness

Trade and wholesale inventory data published last week, however, suggested the economy actually contracted. That was corroborated by a third report from the Commerce Department on Wednesday, showing business inventories barely rose in March.

The government will release its GDP revision later this month.

The case for the central bank to delay raising interest rates was strengthened by a separate report from the Labor Department showing import prices fell 0.3 percent in April after slipping 0.2 percent in March.

The dollar, which has gained about 11 percent against the currencies of the United States' main trading partners since June, and lower crude oil prices are keeping a lid on price pressures. That has left inflation running well below the Fed's 2 percent target.

Last month, retail sales were curbed by declines in receipts at auto dealerships, service stations, furniture and electronic and appliance stores.

There were some pockets of strength, with sales of clothing, sporting goods and building materials and garden equipment rising. Receipts at online stores rose as did those at restaurants and bars.