Consumers are spending less and losing confidence unexpectedly, data showed Friday, adding to indications that economic momentum is waning again after earlier signs of strength.
March retail sales fell 0.4% from February, the Commerce Department said. Wall Street expected no change. On an annual basis, sales grew 2.8%, the slowest pace since November 2009.
Cheaper gasoline didn't boost spending elsewhere. Most retail categories saw declines, as higher payroll taxes continued to take a toll and late winter storms kept shoppers at home.
U.S. stock indexes sold off initially on the report, but erased most of the losses by the close.
Auto sales sank 0.6% last month. Sales excluding autos, gas and building materials slid 0.2%. Commerce uses this core measure in calculating consumer spending in its GDP report.
Apparel stores saw a 0.1% uptick. On Thursday, retail chains reported March sales rose 1.5%, with gains at Limited Brands (LTD), Ross Stores (ROST) and TJX Cos. (TJX) Electronics stores spending declined 1.6%, the fourth drop in a row, and health and personal care retailers rung up 0.3% less. But e-commerce and other nonstore retailers sold 0.3% more. Bar and restaurant spending grew 0.7%.
The disappointing retail data came a week after a jobs report that showed March hiring was less than half its prior trend.
Friday's reports spurred Barclays to trim its Q1 economic growth view to a 2.8% annual rate from 3.2%. RBC Capital Markets also now sees 2.8% in Q1 and slashed its Q2 forecast to 1% from 1.5%.
The weak spending and job reports underscore how difficult it is for the economy to generate significant momentum, wrote Tom Porcelli, chief U.S. economist at RBC, in a research note.
"Indeed, this is yet another factor that will, at the very least, quell chatter from Fed officials about scaling back asset purchases in the near term," he added.
Consumer spending looks to get worse, and the effects of across-the-board federal budget cuts have yet to be felt broadly.
The University of Michigan's consumer sentiment index fell 6.3 points in April to 72.3, the lowest since July 2012, reversing three months of improvement. Readings on current conditions and expectations both dropped.
Growth should start to regain some traction toward the end of Q2 as the fiscal drag fades, more jobs are added and cheaper gas prices boost spending power, predicts Jack Kleinhenz, chief economist at the National Retail Federation.
The wealth effect from rising home prices, which may have masked the early bite from higher payroll taxes, should continue to underpin growth, he added. Businesses are still investing in equipment, and exports are providing a lift too.
"The private sector is still chugging along," he said.