Retail Sales Disappoint, Small Business Indicators Weaken

Small businesses are turning gloomy and retail sales growth fell short of estimates, indicating the U.S. economy may be weakening.

According to a new report by the Census Bureau, sales expanded in March with broad-based gains, although the most aggressive increases were in auto sales, which rose over 2.5%in March.

Small businesses are turning gloomy and retail sales growth fell short of estimates, indicating the U.S. economy may be weakening.

According to a new report by the Census Bureau, sales expanded in March with broad-based gains, although the most aggressive increases were in auto sales, which rose over 2.5%in March.

Retail sales rose 0.9% in March from the prior month, below the 1.1% growth that analysts were expecting. While this is an increase from the February month-over-month rate of change, in which sales fell 0.6% according to a new revision, the growth was far below expectations as analysts saw easy comparisons and improving weather as drivers of greater growth.

In fact, the rise in sales was $441.4 billion in total, in seasonally adjusted terms, while retail sales excluding gasoline rose 1%. Retail and food service sales rose 4.3% on a year-over-year basis.

As oil prices rebounded in March, the increase in sales may be a large part due to an increase in energy costs, and is not an indicator of long-term inflationary trends or a rise in total demand.

Small Businesses Feel the Pinch

With retail sales falling, small business optimism has fallen in a sign that falling consumer spending, weak exports, and a lack of stimulative fiscal policy are dragging down business revenues and profits.

According to a new survey by the NFIB, the Small Business Optimism Index saw all 10 components fall, a “rare occurrence” that brings the index to its lowest point in nearly a year.

“It is no surprise that optimism is muted and owners’ expectations about the future are less than exuberant. Small business owners are not encouraged to expand their businesses when consumer spending is down, US trading partners are weakening and the government continues to try and micromanage the private sector with red tape and regulations,” said NFIB Chief Economist Bill Dunkelberg.

The index saw weakness in employment plans, investment plans, inventory demand, real sales growth, macroeconomic growth trends, and credit availability.

Small businesses are lowering their employment expectations, according to the index. “The net percent of owners reporting an increase in employment fell 5 percentage points to a net -1% of owners, down substantially from the recent high of 9% in December 2014,” said the report.

At the same time, earnings fell 3 points, labor costs rose 2 points, and the report noted rising labor costs remain a pressure on profitability: “Labor costs continue to put pressure on the bottom line.”

NFIB’s Dunkelberg also noted that the trend might impact monetary policy, as market expectations of a rate hike in the coming months may be premature. “The Fed persists in holding rates down and is probably not inclined to raise rates until GDP and employment growth rates pick up substantially. The fact that the Fed doesn’t raise rates signals that they don’t expect the economy to improve,” he said.