Sales and Economy Continues Slide

     *

By JEFF BATER and TOM BARKLEY

WASHINGTON -- U.S. retail sales unexpectedly plunged during March in a 
broad-based decrease that threw a shadow over recent signs of improvement 
in the slumping economy.

Retail sales decreased by 1.1% compared to the prior month, the Commerce 
Department said Tuesday. Economists expected an increase of 0.3%.

Sales in February were revised up, increasing 0.3% instead of dipping 0.1% 
as originally reported. January sales were revised up to an increase of 
1.9% from an increase of 1.8%.
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The big decline in March sales was a disappointment. The increases in 
January and February sales had temporarily ended a freefall in consumer 
spending during the second half of 2008. People seemed to be braving a 
pitiless job market and pulling out their wallets again, which is good for 
the economy. Consumer spending makes up 70% of gross domestic product, the 
broad measure of economic activity.

Other signs have emerged the economy might be stabilizing. Big bank Wells 
Fargo last week projected net income of $3 billion in the first quarter, 
well above analysts' expectations. The optimistic earnings report within 
the suffering banking sector pushed up the overall stock market.

And the government Thursday reported the U.S. trade deficit shrank 28% in 
February. Analysts said the sharp drop limited the size of the 
first-quarter fall of GDP.

GDP plunged 6.3% in the fourth quarter, which may have been the pit of a 
recession that started in December 2007. Retail sales, a key indicator of 
consumer spending, fell July through December last year.

But instead of extending hopes of consumer confidence, Tuesday's retail 
sales data seemed a setback. Housing-sector sales dropped sharply in 
March, with furniture retailers down 1.7% and building material and garden 
supplies dealers sliding 0.6%.

Another sector that has weighted down the economy is cars. Year over year, 
auto and parts retail sales have fallen 23.5% since March 2008. March 2009 
sales fell 2.3% compared to the prior month. Excluding autos, all other 
sales dropped 0.9% -- bigger than the 0.1% dip expected by economists. 
Auto sales dropped 3.0% in February and ex-auto sales that month rose an 
upwardly revised 1.0%.

March gas station sales retreated 1.6%, after rising 3.1% in February. 
Stripping away sales at gas stations, demand at all other retailers 
decreased 1.1% in March.

Excluding auto sales and gas station sales, all other retailers saw sales 
fall 0.8% in March.

Sales last month decreased 1.8% at clothing stores; 5.9% at electronic 
stores; 0.2% at general merchandise stores; 1.7% at mail order and 
Internet retailers; 0.9% at sporting goods, hobby, book and music stores; 
and 1.4% at eating and drinking places.

Sales rose 0.4% at health and personal care stores and 0.5% at food and 
beverage stores.
Producer Prices Drop

U.S. producer prices posted the biggest drop so far this year in March 
after two straight months of gains on the back of falling energy costs, 
though core prices remained steady.

Price pressures deeper in the production pipeline declined last month, as 
well, as prices on both intermediate goods and raw materials fell for the 
eighth month in a row.

The data could raise concerns about the risk of deflation as the Federal 
Reserve continues to take extraordinary measures to support the weak 
economy and strained financial markets, though few policymakers have 
expressed much concern about a deflationary spiral thus far.

The producer price index for finished goods fell 1.2% on a seasonally 
adjusted basis in March, the Labor Department said Tuesday, after rising 
0.1% in February. Last month's drop was much bigger than the 0.1% decline 
predicted by economists in a Dow Jones Newswires survey, and was the 
largest since the 3.9% decrease in December.

PPI was off 3.5% from March 2008, the largest annual decline since January 
1950.

Core PPI, which excludes food and energy costs, was unchanged last month 
from February, versus expectations for a 0.1% increase. It was up 3.8% 
from a year ago.

Last week, a government report showed the first gain in U.S. import prices 
in eight months in March amid a jump in oil prices. However, consumer 
prices due out Wednesday are expected to ease a bit.

The PPI data showed energy prices sliding 5.5% last month, after rising 
1.3% in February. Wholesale gasoline prices decreased 13.1%. Food prices, 
meanwhile, were down 0.7%.

Prices of passenger cars fell 0.2%, while light truck prices declined 
0.4%.

Deeper in the production pipeline, declining prices suggested that 
deflationary pressures would remain in place. Prices of raw materials, 
known as crude goods, fell 0.3% on the month. Core crude goods prices 
decreased 1.6%.

Intermediate goods prices fell 1.5%, while core intermediate goods 
decreased 0.3%.

Write to Jeff Bater at jeff.bater-twM2Yer8+e9Wk0Htik3J/[email protected] and Tom Barkley at 
tom.barkley-twM2Yer8+e9Wk0Htik3J/[email protected]