Weak Retail, Inflation Data Spark Recovery Jitters

Retail sales dropped 1.1% in March

U.S. retail sales and wholesale inflation unexpectedly fell last month, government data showed on April 14, fueling worries about recovery prospects from recession and the risk of deflation. The March reports reflected weak consumer demand amid rising unemployment and job insecurity, a worrying sign because consumer spending accounts for two-thirds of U.S. economic activity.

The Commerce Department said U.S. retail sales dropped a seasonally adjusted 1.1% in March, the sharpest plunge in seven months, after gains in the two previous months, surprising market expectations of a 0.3% increase.

March retail sales were 9.4% lower than the same month in 2008.

Even excluding auto sales, retail sales fell 0.9% from February, after two months of gains, and were 6% below the year-ago level.

A separate report on U.S. wholesale prices tracked a similar pattern, with an unexpected decline in March after two straight months of gains. The Labor Department said its producer price index (PPI) for finished goods fell a seasonally adjusted 1.2% in March, instead of the 0.1% rise anticipated by analysts.

The PPI fell 3.5% last month from March 2008, the largest annual decline since January 1950, when the country had a brief bout of deflation.

Plunging food and energy prices led the March decline in wholesale prices. Excluding food and energy prices, core inflation remained flat, as expected.

"The report shows input costs still declining, and core finished goods prices flat as weak demand removes pricing power," said Nigel Gault, chief US economist at IHS Global Insight. "Although fears of deflation have eased, as global commodity prices have stabilized, today's PPI report emphasizes that deflation rather than inflation remains the primary risk for now."

Another report from the Commerce Department released on April 14 showed U.S. businesses continued to slash inventories in February as companies hunkered down in the sluggish economy. Business inventories fell a bit more than expected, by a seasonally adjusted 1.3% from January, and were down 3.5% from a year earlier.

Copyright Agence France-Presse, 2009

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