What Today's Retail Sales Figures Really Mean

The lower-than-expected drop suggests consumers are scaling back.

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After news broke this morning that retail sales fell in March by 1.1 percent compared to the previous month -- analysts were expecting a modest gain of 0.3 percent -- the market quickly expressed its disappointment. (As of 11am, the S&P 500 Index is down almost 0.4 percent.) More positive retail sales number in January and February had given the impression that consumers were going back to spending -- and stimulating the economy.

So does this setback mean the economy is in even worse shape that previously thought? Not necessarily. Consumers, who have been experiencing record job losses and housing-related challenges, did pull back, but that could represent a shift towards voluntary frugality, not necessarily hardship. The Fed reported last week that credit card debt has dropped by almost 10 percent, which represents more saving as well as less access to credit. During past slowdowns, Bureau of Economic Analysis data shows that people typically start saving more and spending less.

Perhaps the disappointing retail sales figures can serve as a warning that consumers no longer want to play the role of our economy's giant steam engine. While consumer spending currently makes up about 70 percent of the gross domestic product, that could change, if consumers continue to scale back and if business investment or government spending take its place.

What do you think -- are the days of the American Consumer as primary driver of the economy nearing their end?