U.S. retail sales fall for second straight month on weak automobiles

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FILE PHOTO: A woman carries purchases across 34th Street in Manhattan, New York, U.S., November 25, 2016. REUTERS/Andrew Kelly (Copyright Reuters 2017)

U.S. retail sales fell for a second straight month in March amid softening demand for automobiles, suggesting economic growth slowed abruptly in the first quarter.

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The Commerce Department said on Friday retail sales dropped 0.2 percent last month. February's retail sales were revised

down to show a 0.3 percent decrease instead of the previously reported 0.1 percent gain.

February's drop was the first and biggest in nearly a year.

Economists polled by Reuters had forecast retail sales slipping 0.1 percent last month. Compared to March last year retail sales increased 5.2 percent.

Excluding automobiles, gasoline, building materials and food services, retail sales rebounded 0.5 percent after a downwardly revised 0.2 percent decline in February.

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These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic

product, were previously reported to have edged up 0.1 percent in February.

Despite last month's increase in core retail sales, consumer spending likely braked sharply in the first quarter after

growing at a brisk 3.5 percent annualized rate in the final three months of 2016. The apparent slowdown in consumption is

partly blamed on the late disbursement of income tax refunds by the government as it sought to combat fraud.

The Atlanta Federal Reserve is forecasting GDP rising at a 0.6 percent rate in the first quarter. This would be the weakest performance in three years and follows a 2.1 percent growth pace in the fourth quarter.

With job growth averaging 178,000 per month in the first quarter, the anticipated slowdown in GDP likely understates the

health of the economy. In addition, first-quarter GDP tends to be weaker because of calculation problems that the government has acknowledged and is working to resolve.

In March, motor vehicle sales fell 1.2 percent, decreasing for a third straight month. Receipts at service stations dropped 1.0 percent, reflecting lower gasoline prices.

Sales at building material stores fell 1.5 percent, likely as bad weather halted work at construction sites. There were,

however, areas of strength in March's retail sales report.

Sales at electronics and appliances stores surged 2.6 percent, the largest increase since June 2015. Receipts at

clothing stores climbed 1.0 percent, the biggest advance since February 2016. Retailers have been hurt by declining mall

traffic and increased competition from online retailers, led by Amazon.com.

That has forced retailers like J.C. Penney Co Inc, Abercrombie & Fitch and Macy's Inc to scale back on brick-and-mortar operations.

Sales at online retailers increased 0.6 percent last month. Receipts at restaurants and bars fell 0.6 percent and sales at sporting goods and hobby stores declined 0.8 percent.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)