Hopes that the U.S. economy might be breaking out of its steep slide were dealt a blow Tuesday morning, as retail sales plunged unexpectedly during March. Weak consumer spending suggests that the nation's recession is likely to have further to run, and mortgage industry participants should plan accordingly, despite surging refinance volumes as of late. The Commerce Dept. said Tuesday that retail sales decreased by 1.1% compared to the prior month, a far worse showing than the increase of 0.3% economists and analysts had expected. February sales were revised upward to a 0.3% gain, compared to the 0.1% dip originally estimated, but the revision mattered little in framing the March sales estimate. Read the full report. The poor March sales number was clearly a surprise, and helped turn futures trading on major stock markets negative ahead of market open; the March decline in retail sales reverses two months of gains in Jan. and Feb. that had some expecting the U.S. economy to rebound from its Q42008 doldrums. But it's clear that job losses are finally being felt. "Start shedding more than half a million jobs monthly, and there is simply no way retail sales chug ahead," said a senior bank executive that asked not to be named. No sector appeared to feel that message more painfully than did U.S. automakers, which have been struggling through what many economists have taken to calling the Great Recession. During March, auto sales fell an estimated 2.3%, following a 3% drop in Feb.; auto sales in March were 23.5% below year-ago levels. But automakers weren't alone, as retail sales fell 0.9 percent in March even excluding autos -- analysts had expected flat non-auto retail sales for the month. Home-related retail categories clearly took a hit in March. Furniture and home furnishings retailers saw sales dip 1.7% in March compared to Feb.; sales were 13.1% below year-ago levels. And building material and home supply stores, including Home Depot and Lowe's among others, saw sales fall 0.9%. A separate report from the Labor Dept. showed Tuesday morning that the nation's recession is keeping inflation in check, with prices paid to U.S. producers unexpectedly falling 1.2% in March, after a 0.1% increase in Feb. So-called core inflation, excluding the cost of fuel and food, remained unchanged; year-over-year, core inflation has posted its largest decrease in more than 5 decades. The 1.2 percent decrease in the producer price index for finished good followed a 0.1 percent gain in February, figures from the Labor Department showed today in Washington. Excluding fuel and food, so-called core prices were unchanged. Over the last 12 months, wholesale expenses have fallen by the most in almost six decades. Tuesday's data seems likely to reignite some concern from analysts and economists over the possible threat of a so-called 'deflationary spiral' in the U.S. economy. Write to Paul Jackson at paul.jackson@housingwire.com.