RETAIL SALES in the United States probably stagnated in March and residential construction dropped, demonstrating the biggest housing bust in a generation is hurting consumers, according to a survey of economists there.
Sales were unchanged after dropping 0.6 per cent in February, according to the median estimate of economists surveyed by Bloomberg ahead of a commerce department report to be released today.
Builders broke ground on 5.2 per cent fewer houses last month, a report on April 16th is forecast to show.
Consumer spending is waning as fuel prices rise, property values fall and unemployment climbs.
Other reports this week, showing that inflation accelerated in March, will not prevent the Federal Reserve from lowering the benchmark interest rate this month for a seventh time since the sub-prime mortgage crisis intensified.
"The consumer is having to deal with a very wicked combination of slowing income growth and higher petrol and food prices," said Mark Vitner, a senior economist at Wachovia Corp in North Carolina. "We're not looking for any improvement in housing this year." Excluding car dealers, retail sales are forecast to rise 0.1 per cent, reflecting a gain in receipts at service stations as petrol prices jumped.
The figures are not adjusted for inflation, so price increases would make the data look stronger.
The report is expected to show Americans are buying fewer big-ticket items such as cars and refrigerators as confidence drops and companies cut staff numbers.
Consumer sentiment has slumped to a 26-year low, according to a preliminary report from Reuters/University of Michigan issued last week.
The index of expectations for the next six months, a leading guide to spending, dropped to the lowest level since November 1990.
Car sales will fall to 14.9 million this year, the lowest since 1995, Standard & Poor's forecast last week.
Purchases of less-expensive items, such as clothing, are also faltering. Sales at chain stores open at least a year fell by 0.5 per cent in March, the biggest decline since April 2007, according to the International Council of Shopping Centers.
Housing starts, also from the commerce department, dropped to a 1.01 million annualised pace from 1.065 million in February, according to the median forecast. Homebuilding reached a 16-year low of one million units in December.
Companies and consumers are getting squeezed by rising costs for fuel and raw materials, reports from the labour department may show. Increases in the cost of living will probably cause consumers to rein in spending, indicating they represent a challenge for economic growth rather than inflation.
"Inflation is more of a concern in terms of what it means for the consumer than for monetary policy," Vitner said.
While there's a risk businesses may try to recover higher expenses by raising prices, the slowdown in demand means it will be difficult for companies to make the increases stick.
Investors are betting Fed officials will lower the benchmark rate by at least a quarter of a percentage point later this month.
Policymakers have reduced the rate by 2 percentage points so far this year, the fastest drop in borrowing costs in two decades.
Other reports due out this week are forecast to show manufacturing is contracting.
- (Bloomberg)
