Weak U.S. retail sales, industrial output highlight slowing economy

Weak U.S. retail sales, industrial output highlight slowing economy

WASHINGTON  – U.S. retail sales unexpectedly fell in April as households cut back on purchases of motor vehicles and a range of other goods, pointing to a slowdown in economic growth after a temporary boost from exports and inventories in the first quarter.

The moderation in economic activity was underscored by other data on Wednesday showing a drop in industrial production last month as manufacturers, especially in the automotive sector, worked off stockpiles of unsold merchandise.

Growth is slowing as the stimulus from the White House’s $1.5 trillion tax cut package fades. President Donald Trump’s escalating trade war with China, which triggered a steep U.S. stock market sell-off, is also seen hurting business confidence and undercutting spending on equipment.

Following the weak reports on Wednesday, the Atlanta Federal Reserve cut its second-quarter gross domestic product (GDP) growth estimate to a 1.1% annualized rate from a 1.6% pace. The economy grew at a 3.2% rate in the January-March period.

“Not a great start to the current quarter,” said Sal Guatieri a senior economist at BMO Capital Markets in Toronto.

The Commerce Department said retail sales slipped 0.2% last month after surging 1.7% in March, which was the largest increase since September 2017. Economists polled by Reuters had forecast retail sales gaining 0.2% in April. Retail sales in April increased 3.1% from a year ago.

The National Retail Federation blamed the downbeat sales on slower tax refunds and the weather, including flooding in the Midwest, and “blizzards and extreme temperature swings” elsewhere. Given the stock market rout and cooler temperatures in May, which could have delayed summer purchases, a strong rebound in retail sales in unlikely.

Excluding automobiles, gasoline, building materials and food services, retail sales were unchanged in April after marching 1.1% higher in March. These so-called core retail sales correspond most closely with the consumer spending component of GDP.

Consumer spending accounts for more than two-thirds of economic activity. While March’s strong core retail sales set consumer spending on an upward trajectory in the second quarter, last month’s weakness suggested a moderate pickup in spending. But consumption remains underpinned by a strong labor market, marked by the lowest unemployment rate in nearly 50 years.

“Whatever caused last month’s disappointment, the general backdrop for consumers still looks pretty favorable,” said Michael Feroli, an economist at JPMorgan in New York. “But the quarter got off to a rough start, and we estimate real consumption was down 0.2% last month.”

The dollar was little changed against a basket of currencies, while U.S. Treasury prices rose. Stocks on Wall Street turned higher after a report that Trump might delay a decision to impose auto tariffs.

Slower consumer spending early this year led to a build-up of inventories, which is putting pressure on industries.

In a separate report on Wednesday, the Federal Reserve said industrial production fell 0.5% in April after rising 0.2% in March. The third drop in production this year was led by manufacturing. Output at factories declined 0.5% as motor vehicles and parts production tumbled 2.6%.

Manufacturing production was unchanged in March.

Automobile assembly plants are cutting back production as slowing sales have led to a glut of vehicles in showrooms.