Consumers held back in March, as retail sales, which were generally forecast to have flattened out last month, instead fell by a fairly sharp 0.4%. That pullback compares with a gain of 1.0% in February. Moreover, this was the second decline in the past five months, and suggests that the first quarter, which likely saw growth approach 3%, ended on a more sluggish note that could carry over into the current three months.

In truth, sales have been volatile so far this year, raising some questions as to whether or not this sudden weakness is the result of the tax hikes--notably the end of the payroll tax holiday--or a consequence of the weather, which was hardly spring like in March across much of the country.

Meanwhile, stripping out cars, gasoline, and building materials, sales fell by 0.2% in March. It should be noted that the so-called core measure corresponds closely with the consumer spending component of the gross domestic product. This reading, therefore, is not a plus for the latest quarter's GDP, which will be issued later this month. The government also revised lower the core retail sales figures for February, which showed a gain of 0.3%, and for January, which indicated no change.

Of note, fiscal policies, which had tightened to start the year, as the payroll taxes were increased, tightened further in March, with the introduction of various mandated across-the-board spending reductions, as Washington attempts to shrink the large federal budget deficit.

As to this report, in addition to the overall 0.4% decline in spending, we also had material declines in sales of motor vehicles and parts (off 0.6%), electronics and appliances (down 0.9%), gasoline stations (off 2.2%), and sporting goods and general merchandise stores (down 0.8% and 1.2%, respectively). 

Finally, this was not only a dour report, it could well represent a near-term trend, given the tightened fiscal policies and the fact that early warm weather this year, mostly in January and February, may have pushed some spending forward in 2013. We may be paying for that now, and could well continue to do so in the coming months.