Retail sales fell for the second straight month during March, according to the Commerce Department on Friday. Separate reports showed consumer prices declined – but there are expectations that retail imports will continue to grow as the overall economy expands.

The 0.2% drop in retail sales from the month before was slightly bigger than a consensus estimate from analysts of a 0.1% fall. The department revised February’s figures downward, from a 0.1% decline to a 0.3% drop.

Dragging March sales down were the Big-Three automakers reporting worse-than-expected sales last month. Sales of gasoline also declined, while the Northeast had to deal with a late winter storm that kept people at home and out of stores.

However, when the March level of retail sales is compared to the same time a year ago, it is up a healthy 5.2%.

So called “core sales," which exclude autos, building materials, food services and gasoline, rebounded 0.5% in March from the month before after falling a downwardly revised 0.2% in February from January.

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% annual rate in the final three months of 2016, according to Reuters. The decline is believed to be partly due to the late disbursement of income tax refunds by the government as it sought to combat fraud.

Reuters also noted the Atlanta Federal Reserve is forecasting the nation’s gross domestic product (GDP) to rise at only a 0.6% annual rate in the first quarter, when figures are released later this month. This would be the weakest performance in three years and follows a 2.1% growth pace in the fourth quarter. However, other economic forecasts are calling for the GDP rate to be near the rate it was in the final three months of 2016. (See more on this below.)

Inflation Loosens a Bit

A separate report from the Commerce Department showed prices for goods and services at the consumer level fell in March for the first time in more than a year.

The 0.3% drop in the Consumer Price Index (CPI) from February was due mostly to a drop in the price of fuels, including gasoline. The decline was more than a consensus estimate of a 0.1% drop from Wall Street analysts.

When volatile food and energy prices are removed, the “core CPI” posted a 0.1% decline for the month.

The overall performance pushed the annual inflation rate down to 2.4% compared to a five-year high of 2.7% in February. The “core CPI” is up 2% over the past 12 months, the smallest gain since the fall of 2015.

Look for Increased Retail Imports

All this comes following a report from the National Retail Federation that imports at the nation’s major retail container ports are expected to continue to see strong increases throughout the spring and summer.

“Consumers are spending more, and these import numbers show that retailers expect that to continue for a significant period,” said NRF vice president for supply chain and customs policy Jonathan Gold. “This is a clear sign that the economy has long-term momentum regardless of month-to-month fluctuations. Whether it’s merchandise for store shelves or parts for U.S. factories, imports play a vital role in American prosperity.”

Ports covered by Global Port Tracker handled 1.43 million 20-Foot Equivalent Units (TEU) in February, the latest month numbers are available. That was a drop of 14.3% from January, as many Asian factories shut down for Lunar New Year, and down 7% from the same month a year ago. Coming after the winter holidays and before retailers stock up for summer, February is historically the slowest month of the year for imports.

March was estimated at 1.61 million TEU, up 21.5% from unusually low numbers last year, when Lunar New Year came a week later than this year.

However, forecast numbers call for increased activity:

  • April: 1.59 million TEU, up 10.3% from last year
  • May: 1.68 million TEU, up 3.5% from last year
  • June: 1.66 million TEU, up 5.3% from last year
  • July: 1.71 million TEU, up 5.1% from last year
  • August: 1.74 million TEU, up 1.6% from last year.

The first half of 2017 is expected to total 9.6 million TEU, up 7.3% from the first half of 2016. Cargo volume for 2016 totaled 18.8 million TEU, up 3.1% from 2015, which had grown 5.4% from 2014.

NRF has forecast that 2017 retail sales, excluding automobiles, gasoline and restaurants, will increase between 3.7% and 4.2% over 2016, driven by job and income growth coupled with low debt. Cargo volume does not correlate directly with sales because only the number of containers is counted, not the value of the cargo inside, but nonetheless provides a barometer of retailers’ expectations, according to the group

When it comes to economic numbers, if imports increase as expected, that could turn into a negative when the federal government releases GDP numbers.

That’s because imports are a subtraction when calculating overall GDP performance, while exports are an addition in the calculations. This means even if consumer spending on imports is strong, especially if they outweigh exports as usual, this will drag overall GDP lower.

This was the case in late January, when the federal government released its first figures on the GDP performance during the fourth quarter of 2016. At the time it showed the GDP fell from an annual rate of 3.5% in the third quarter of 2016 to 1.9% in the final three months of last year, since revised to show a 2.1% increase. However, at the time, the report noted part of the slowdown as due to an increase in imports.