April 14 (Bloomberg) -- Retail sales in the U.S. unexpectedly dropped in March for the first time in three months, raising concern the biggest part of the economy may falter once again heading into the second quarter.
Purchases fell 1.1 percent, with declines from car dealers to electronics stores and restaurants, the Commerce Department said in Washington. Only pharmacies and grocery stores saw a gain. The Labor Department said wholesale prices fell last month, indicating that deflation risks remain.
The figures served to temper optimism the U.S. recession has passed its worst, pushing down shares of retailers including Home Depot Inc. and Macy’s Inc. The reports came even as Federal Reserve Chairman Ben S. Bernanke said there were “tentative signs that the sharp decline” in the economy was easing, citing “progress” in stabilizing financial markets, which he said was critical to a sustainable recovery.
“The job losses are too great for the consumer to spring back strongly,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Today’s data is a stark reminder that we haven’t yet seen the bottom in this recession.”
Stocks slid, with the Standard & Poor’s 500 Retailing Index losing 1.6 percent as of 11:40 a.m. in New York, and the broader S&P 500 index down 0.8 percent at 851.56. Benchmark 10-year Treasuries gained, sending their yields down to 2.79 percent from 2.86 percent late yesterday.
Obama, Bernanke
While acknowledging that the economy is still in rough shape, both Bernanke and President Barack Obama today expressed confidence in the longer-term outlook.
“There is no doubt that times are still tough” and “by no means are we out of the woods just yet,” Obama said in f a speech today. “But from where we stand, for the very first time, we are beginning to see glimmers of hope.”
In a sign that bankers are gaining confidence the worst of the financial crisis is over, the London interbank offered rate for three-month dollar loans is dropping at the fastest pace since January. The rate declined to 1.12 percent today from 1.32 percent a month ago.
Still, even the world’s largest retailer is struggling. Wal-Mart Stores Inc. said this month that comparable-store sales in March rose less than some analysts estimated. Purchases at Costco Wholesale Corp. stores open at least a year fell 5 percent.
Inventories Drop
The Commerce Department also said today that inventories at U.S. businesses fell in February for a sixth straight month as companies braced for weakening sales. The 1.3 percent drop in the value of unsold goods at factories, retailers and wholesalers was larger than forecast and matched January’s decline. Sales rose 0.2 percent, the first gain since July.
Retail sales were projected to rise 0.3 percent in March after an originally reported 0.1 percent decline the prior month, according to the median estimate of 73 economists in a Bloomberg News survey.
“The green shoots are looking a little brown,” said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York, referring to remarks by Bernanke last month that there were “green shoots” of recovery. “The hope is that continued policy stimulus will offset the other bad news and give us some kind of growth” in sales in the second quarter.
The retail sales figures indicated incentives and promotions by car dealers and clothing stores such as Gap Inc. failed to draw customers hurt by a lack of credit and the highest unemployment rate in more than 25 years.
Broad-based Decline
Excluding automobiles, sales decreased 0.9 percent after a 1 percent gain in February. They were forecast to show no change, according to the survey median.
In addition to rising unemployment, a late Easter holiday this year may have shifted sales out of March and into April, some economists said. Shifting holidays can make it more difficult for Commerce to take into account seasonal buying patterns when tabulating purchases.
Wholesale prices fell 1.2 percent after a 0.1 percent gain in February, the report from Labor showed. Excluding fuel and food, so-called core prices were unchanged. Over the last 12 months, wholesale expenses fell by the most in almost six decades.
“Clearly, deflation is a concern right now, though the biggest worry is to restore growth,” said Anika Khan, an economist at Wachovia Corp. in Charlotte, North Carolina. As long as inflation remains contained, Khan said, “it gives the Fed more room to try to restore growth.”
Recessions here and abroad mean inflation will “remain subdued,” the Federal Open Market Committee said March 18. For that reason, the central bankers added that the target interest rate will remain at “low levels” for “an extended period.”
“We are in the worst of the recession, it’s not over,” said Roger Kubarych, chief U.S. economist at UniCredit Global Research in New York, who had forecast a drop in retail sales. “The recovery is still another three to six months in the future.”
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net; Shobhana Chandra in Washington at schandra1@bloomberg.net
