(Updates with revised GDP forecast, new analyst comment)
* Retail sales fall 0.2 percent in March
* Core retail sales increase 0.5 percent
* Consumer prices fall 0.3 percent; up 2.4 pct year-on-year
* Core CPI drops 0.1 percent; up 2.0 percent year-on-year
By Lucia Mutikani
WASHINGTON, April 14 U.S. retail sales fell for
a second straight month in March and consumer prices dropped for
the first time in just over a year, underscoring the magnitude
of the loss of economic growth momentum in the first quarter.
But with the labor market near full employment, Friday's
weak reports failed to change views that the Federal Reserve
will raise interest rates again in June. Economists expect a
rebound in both retail sales and monthly inflation.
"For the Fed, the underlying momentum is more important in
terms of policy decisions, and that looks to be strong,
supported by a tightening labor market, rising incomes and high
consumer confidence," said Gregory Daco, head of U.S.
macroeconomics at Oxford Economics in New York.
The Commerce Department said retail sales dropped 0.2
percent last month after a 0.3 percent decrease in February,
which was the first and biggest decline in nearly a year.
Compared to March last year retail sales increased 5.2 percent.
Economists had forecast retail sales slipping 0.1 percent.
Excluding automobiles, gasoline, building materials and food
services, retail sales rebounded 0.5 percent last month after
falling 0.2 percent in February.
These so-called core retail sales correspond most closely
with the consumer spending component of gross domestic product.
Despite last month's rebound in core retail sales, consumer
spending likely braked sharply in the first quarter after
growing at a brisk 3.5 percent annualized rate in the final
three months of 2016. The apparent slowdown in consumption is
partly blamed on the late disbursement of income tax refunds by
the government as it sought to combat fraud.
The Atlanta Fed lowered its first-quarter GDP estimate by
one-tenth of a percentage point to a 0.5 percent rate, which
would be the weakest performance in three years. The economy
grew at a 2.1 percent pace in the fourth quarter.
With job growth averaging 178,000 per month in the first
quarter, the anticipated slowdown in GDP likely understates the
health of the economy. First-quarter GDP tends to be weaker
because of calculation problems that the government has
acknowledged and is working to resolve.
Retail sales last month were undercut by a 1.2 percent
tumble in receipts at auto dealerships. It was the third
straight monthly drop in auto sales. Lower gasoline prices also
undermined retail through a 1.0 percent drop in receipts at
POCKETS OF STRENGTH
A 1.5 percent plunge in sales at building material stores
was also a drag. But electronics and appliances store sales
recorded their biggest rise since June 2015.
Receipts at clothing stores increased by the most in a year,
despite declining mall traffic and increased competition from
online retailers, led by Amazon.com.
Retailers like J.C. Penney Co Inc, Abercrombie &
Fitch and Macy's Inc are scaling back on
U.S. financial markets were closed for the Good Friday
In a separate report, the Labor Department said its Consumer
Price Index dropped 0.3 percent in March, the first decline in
13 months and biggest decrease since January 2015 amid falling
prices for gasoline and mobile phone services, which offset
rising rents and food costs.
The CPI nudged up 0.1 percent in February. In the 12 months
through March, the CPI rose 2.4 percent, slowing from February's
2.7 percent increase.
The so-called core CPI, which strips out food and energy
costs, fell 0.1 percent, the first and biggest drop since
January 2010, after rising 0.2 percent in February. The
year-on-year increase in the core CPI slowed to 2.0 percent, the
smallest advance since November 2015, from 2.2 percent in
"We don't think this is enough to cause the Fed to swerve
from their stated desire to continue gradually increasing the
funds rate, though it may embolden the doves' rhetoric," said
Michael Feroli, an economist at JPMorgan in New York
The Fed has a 2 percent inflation target and tracks an
inflation measure which is at 1.8 percent. The U.S. central bank
lifted its overnight interest rate by a quarter of a percentage
point in March and has forecast two more hikes this year.
A 6.2 percent drop in gasoline prices was the biggest factor
in the monthly decline in the CPI, which was also weighed down
by a record 7.0 percent plunge in the cost of wireless telephone
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)