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Consumers Cut Spending in March

Dismal retail sales reports undercut optimism about economy

By Mark Huffman
ConsumerAffairs.com

April 14, 2009

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Consumers looking for some positive indicators about the nation's battered economy won't find it in the report on March's retail sales. After rising in January and February, U.S. retail sales dropped last month.

The Commerce Department reports sales at the retail level dropped a whopping 1.1 percent in March, as consumers stayed out of new car showrooms and away from electronics retailers.

Joel Naroff, chief economist for Naroff Economic Advisors, of Holland, Pa., says consumers did a "wait a minute," expressing uncertainty about whether or not the economy is actually on the mend.

"But let's not get too worried that households have decided to close up their wallets again," Naroff said. "That's because there were some strange doings in the report."

First, says Naroff, vehicle sales were off sharply. But the number of vehicles sold actually rose, meaning dealers' steep price cutting was reflected in the lower total sales figures.

"Second, gasoline prices rose in March but total sales were down," Naroff said. "Other reports didn't indicate that drivers had parked their vehicles nearly as much as the retail numbers imply. So that has to be watched as well."

At the same time, however, demand for just about everything fell. There were large reductions in demand for furniture, electronics and appliances, building materials, sporting goods and clothing.

"We didn't even buy much over the internet or eat out," Naroff said. "We did buy lots of food to cook at home and health care spending jumped as well. But that was about it."

The report may cause many economists, who had said the economy is slowing turning around, to rethink their positions. But Naroff believes consumers taking a break in March, after two strong months, should have been anticipated. All in all, he says, we could see a return to more modest demand as tax refunds and rebates kick in.

Federal Reserve Chairman Ben Bernanke also appears unshaken in his belief that the economy is still on track. He said today there are were "tentative signs that the sharp decline in economic activity may be slowing."

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