Retail sales down 0.2%; prices drop

— Sales at U.S. retailers declined in March for the second month in a row, hurt by fewer purchases of automobiles, Commerce Department data showed Friday.

In a second report Friday, the Labor Department said consumer prices fell in March by the most in more than two years.

Retail sales fell a seasonally adjusted 0.2 percent, after a revised 0.3 percent drop in February. But over the past 12 months, retail sales have risen 5.2 percent, a sign that the economy remains on stable footing.

There are signs consumers are growing more cautious even though the unemployment rate declined in March to 4.5 percent. Steady job growth as the recovery from the recession nears its eighth year and a bump in consumer sentiment after Donald Trump’s presidential election have yet to strengthen spending much.

Richard Moody, chief economist at Regions Financial, said the decline might reflect a natural retreat after strong consumer spending in the final three months of last year.

The improving job market and rising household net worth should keep the economy in solid shape, he suggested.

“None of those things point to a structural slowdown in consumer spending,” Moody said.

Ian Shepherdson, an economist at Pantheon Macroeconomics, cautioned, though, that the retail sales figures are “impossible to square with the stratospheric levels of consumer confidence.”

The divergence suggests either an acceleration in retail sales later this year or a decline in consumer confidence.

“We expect a bit of both,” Shepherdson said.

Since the start of 2017, Americans have cut back on purchases at auto dealers and restaurants and bars, two major sources of sales gains in prior years. Sales tumbled 1.5 percent last month at auto dealers and 0.6 percent at restaurants and bars. It was the second straight monthly drop in sales for both categories.

“As with last year, we expect the first quarter (and especially March) weakness in auto sales to be short-lived as the job market expands. Moreover, gasoline prices have risen again in April,” David Berson, chief economist at Nationwide, said in a note after the report.

“Consequently, we look for consumer spending to rebound in April and following months.”

Spending at building materials stores fell in March. And sales were lower at gasoline stations, though that likely reflected lower energy prices rather than waning enthusiasm from consumers.

Some of last month’s pullback in retail sales was offset by rising purchases at department stores, clothiers and electronics outlets. Still, sales at those businesses have been sluggish over the past year.

One bright spot has been online retailers, which continue to thrive. Sales at nonstore retailers improved 0.6 percent in March and have surged 11.9 percent during the last 12 months. More consumers are migrating away from stores to online outlets.

Meanwhile, the Labor Department’s consumer price index dropped 0.3 percent in March after a 0.1 percent rise in February. It was the first

monthly decline for retail inflation in 13 months and the biggest drop since prices fell 0.6 percent in January 2015. In addition to a 6.2 percent fall in gasoline prices, the cost of cellphone plans, new and used cars, and clothing were all lower last month.

Core inflation, which excludes volatile food and energy, dropped 0.1 percent last month. Over the past 12 months, inflation is up a moderate 2.4 percent while core prices have risen 2 percent.

The Federal Reserve seeks to manage the economy to produce annual increases in inflation around 2 percent. But since the 2007-09 recession, the worst downturn in seven decades, inflation for a number of years lagged below the 2 percent level. The Fed last month increased a key interest rate for the second time in three months and has projected two more rate increases this year.

“One very soft month does not make a new trend, though, so we will be looking for a clear rebound in April,” Pantheon’s Shepherdson said in a note after the report. “Another month like March, though, and a June rate hike will become much less likely.”

For March, energy prices dropped 3.2 percent, led by the plunge in gasoline prices. Even with the decline, gasoline prices are 19.9 percent higher than a year ago.

Food costs edged up 0.3 percent last month but remain only 0.5 percent higher than a year ago.

One bright spot has been online retailers, which continue to thrive.