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Last Update: 12-Apr-13 08:50 ET
Higher Taxes Likely the Cause for the March Decline in Retail Sales
Retail sales fell 0.4% in March after increasing a downwardly revised 1.0% (from 1.1%) in February. The Briefing.com consensus expected retail sales growth to be flat. The drop in sales is likely the lagged result of the increase in taxes that occurred at the beginning of the year. The negotiated fiscal cliff deal and the expiration of the payroll taxes led to a large reduction in income. Spending in January and February was unaffected by the tax increases, probably because consumers were unaware that everyone's taxes increased and not just the high earners. It took a couple of months for households to adjust their spending behavior and the pullback occurred in March. As a result, the savings rate likely returned toward 3.0% in March. Still, for all of the negative highlights in the March retail sales report, after we adjust for expected inflation, real spending was likely flat. Spending at motor vehicles and parts dealers fell 0.6% in March after increasing 1.3% in February. That was in-line with the slight pullback in motor vehicle sales reported by the auto manufacturers last week. Excluding autos, retail sales fell 0.4% after increasing 1.0% in February. The consensus expected sales growth excluding autos to remain flat. Core sales, which exclude the volatile motor vehicle dealers, gasoline stations, and building materials and supply stores, dropped 0.2% and indicates a slightly better-than-headline sales report for GDP purposes.
