Poor retail sales latest sign that US cuts biting

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US RETAIL sales contracted in March for the second time in three months in the latest sign that the recovery of the world’s largest economy is faltering.

The news follows worse-than-expected jobs figures last week and has been linked to tax increases that kicked in on 1 January as part of the unresolved “fiscal cliff” .

Official figures showed that retail sales fell 0.4 per cent during the month, below analysts’ expectations that sales would be flat.

Readings for retail sales have been volatile this year, making it difficult to know whether the weakness in March was due to a tax hike that went into effect at the start of the year or to temporary factors related to the weather. Sales grew by 1 per cent in February.

The US has been out-performing European economies in recent quarters, leading to hopes that its vast consumer demand will stimulate a wider global recovery.

In particular, strong job creation by US firms had driven down the unemployment figure and bolstered confidence among workers, but last week’s payroll numbers produced their first major disappointment of the year.

Chris Williamson, chief economist at Markit, said: “This weakness is possibly linked to increased payroll and income tax hikes at the start of the year, and will add to worries that the US economy is slowing as we move into the spring and automatic budget spending cuts come into force. With this in mind, the Fed will be more cautious about sending signals that it is preparing to ease on stimulus.”

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