Weak March US retail sales dimmed confidence today in the strength of the economy, prompting investors to bet the Federal Reserve may not have to raise interest rates as sharply as some feared.
The Commerce Department said retail sales rose 0.3% last month, less than half of the 0.7% predicted by Wall Street, after a sharp downturn in department store and clothing sales.
Analysts said the data implied weaker-than-forecast gross domestic product growth in the first three months of the year. They had forecast a strong March for retailers due to higher petrol prices and on assumptions that consumers would stock up on spring clothing. February's number was unchanged at up 0.5%.
Strong US growth and concern about inflation has prompted the Federal Reserve to raise interest rates steadily since last June.
The Fed increased overnight borrowing costs by a quarter percentage point to 2.75% on March 22 and warned price pressures were picking up. Some analysts think policy-makers may start raising rates at a faster half percentage point pace to keep inflation at bay.
Economists scrutinize retail sales as the key to consumer spending, which in turn makes up two-thirds of US economic output. The numbers give a clue to how households were coping with sizzling oil prices at the end of the first quarter.
Higher energy costs are a tax on household budgets that can crimp spending. Clothing sales declined 1.9% while department store sales were off 2%.
Excluding cars, which can swing sharply from month to month, retail sales advanced just 0.1% - the weakest reading since April 2004 - compared with forecasts for a 0.5% gain. The previous month was revised up to show a 0.6% increase from an initially reported 0.4% rise. Compared with a year earlier, March sales excluding car were 6.6% higher.
Stripping out both petrol and motor vehicle sales, retail sales actually shrank 0.1%, suggesting households indeed felt the pinch of soaring petrol prices as crude oil costs advanced towards record highs.
Earlier, the Mortgage Bankers Association said that home loan applications rose last week despite higher mortgage rates. Its seasonally adjusted index increased 6.1% to 683.6 in the week ended April 8.
Housing has been buoyed by low US interest rates and has helped to support consumer spending. But 30-year home loan rates inched up slightly last week by four basis points to 5.95% and economists expect the sector to cool slightly this year as the Federal Reserve continues to lift borrowing costs.
