U.S. retail sales fell in March from February by the most in nine months, indicating higher taxes and weak hiring have made consumers more cautious about spending.
The Commerce Department says retail sales declined a seasonally adjusted 0.4 per cent last month. That followed a 1 per cent gain in February. Both February and January's figures were revised lower.
Consumers cut back across a wide range of categories. Sales at auto dealers dropped 0.6 per cent. Gas station sales dropped 2.2 per cent, partly reflecting lower prices. The retail sales figures aren't adjusted for price changes.
Excluding autos, gas and building materials, core sales dropped 0.2 per cent in March. That followed a gain of 0.3 per cent in January. Department stores, grocery stores, electronics retailers and sporting goods stores all reported lower sales.
The retail sales report is the government's first look at consumer spending, which drives about 70 per cent of economic activity.
The weak month of spending at retail businesses shows an increase in Social Security taxes that took effect on Jan. 1 is finally affecting consumers. The increase has lowered take-home pay this year for nearly all workers. Someone earning $50,000 has about $1,000 less to spend in 2013. A household with two high-paid workers has up to $4,500 less.
Most economists thought the tax increase would drag on spending earlier this year. But they were encouraged after February's retail sales report showed such a large gain. Many boosted their forecasts for economic growth in the first quarter to a 3 per cent annual rate or higher, although many are likely to reduce those expectations slightly after seeing Friday's retail spending figures.
A sharp slowdown in hiring in March may have also weighed on sales last month. Employers added only 88,000 jobs last month, much lower than the average gain of 220,000 in the previous four months. But hiring may pick up in the coming months. Weekly unemployment benefit applications fell sharply last week, suggesting that companies are cutting fewer jobs.
A private survey of 15 major retailers released Thursday showed that shoppers spent cautiously last month, held back by the coldest March in seven years. Still, sales at stores open for at least a year rose 1.6 per cent in March, according to the International Council of Shopping Centers.
Auto sales also slowed slightly in March, to an annual pace of 15.3 million. That was down from 15.4 million in February.
And after a sharp run-up in February, gas prices fell last month, which also affected the retails spending figures. The cost of a gallon of gas averaged $3.56 nationwide Thursday, down from $3.70 a month earlier.