Purchases fell 0.4 percent during March 2013, the most in nine months. The outlook from consumers also took a hit to 72.3 in April from 78.6 a month earlier as employment slowed down.
Economists were optimistic for the best quarter in two years. However, hiring and wage gains will be needed to offset any slowdown as federal budget cuts and an increase in the payroll tax hurt the expansion.
“It’s not as if things are falling apart, they’re just softening relative to a strong start to the quarter,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. “The first quarter still looks better than had been expected a few months ago, particularly in the face of the headwinds.”
Growth this quarter is expected at 1.5 percent as consumer spending cools and sequestration has an impact. “By the time we get to the second half of the year, some of the more severe fiscal headwinds should be fading and second- half growth will look better,” Feroli said.
“Clearly the economy is still pressuring the consumer out there,” Ken Martindale, chief executive officer of drugstore chain Rite Aid Corp.
Consumer spending had held up early in the year, despite a fiscal pact on January 1 by Congress that allowed the tax used to finance Social Security to revert to 6.2 percent, where it was in 2010, from 4.2 percent. “Households are now making those difficult choices on how to adjust spending,” said Ellen Zentner, a senior economist at Nomura Securities International Inc. “We have no steam going into the second quarter.”
Source: Bloomberg.com
