Retail Sales In U.S. Declined For A Second Month In May

June 14, 2012
Bloomberg News
Shobhana Chandra

Retail sales in the U.S. fell in May for a second month, prompting economists to cut forecasts for economic growth as limited job and income gains hold back consumers.

The 0.2 percent decrease matched April’s drop that was previously reported as a gain, Commerce Department figures showed today in Washington. Sales excluding car dealerships slumped by the most in two years.

June 13 (Bloomberg) -- Bloomberg's Mike McKee reports that retail sales in the U.S. fell in May for a second month as slower employment and subdued wage gains damped demand, a sign the world’s largest economy is cooling. The 0.2 percent decrease followed a similar decline in April. 

The smallest wage gains in a year and unemployment exceeding 8 percent are taking a toll on the consumer spending that accounts for about 70 percent of the economy, leaving it more vulnerable to shocks from the European crisis. Federal Reserve policy makers gather next week to decide whether further stimulus is needed to fuel the three-year-old expansion.

“The consumer is pulling back,” said Michael Brown, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who correctly forecast the drop in sales. “There isn’t a lot of job creation. We will continue to see softer numbers.”

Stocks fell after the report and as higher borrowing costs in Italy and Germany fueled concern about the global economy. The Standard & Poor’s 500 Index declined 0.7 percent to 1,314.88 at the close in New York.

Last month’s drop in retail sales matched the median forecast of 79 economists surveyed by Bloomberg News. Estimates ranged from a drop of 0.7 percent to a gain of 0.5 percent. April and May marked the first back-to-back declines in two years.

Europe’s Economy

In the euro area, industrial production decreased for a second month in April, led by a drop in Germany and adding to signs of a deepening economic slump. Output in the 17-nation euro region declined 0.8 percent from a month earlier, the European Union’s statistics office in Luxembourg said.

Japan’s machinery orders increased more than forecast and South Korea’s unemployment fell as Asian economies showed resilience in the face of Europe’s debt crisis, other data showed.

Economists at Goldman Sachs Group Inc. reduced their tracking estimate for U.S. second-quarter gross domestic product immediately following the retail sales report, to a 1.6 percent gain from 1.8 percent. Morgan Stanley cut its projection 0.2 percentage point, to 1.8 percent, while Credit Suisse marked down GDP for the period to 2.2 percent from 2.5 percent.

Souvenir Sales

“People aren’t opening their wallets,” said Ivy Montville, who operates White House Gifts, a souvenir shop in Washington. “This year, the first quarter was good but the second quarter has been marginal. The economy just isn’t as strong as it used to be.”

The Georgetown Day Spa in Charlotte, North Carolina, has suffered an almost 50 percent drop in its massage business this year and 25 percent decline in skin care, said owner Gary Adams. Customers are also putting off haircuts and coloring, he said.

“People are waiting a little bit longer between services, going for five or six weeks maybe instead of four,” said Adams, 55, who started the business in 1998. “Everybody has been really cautious, trying to save where they can or stretch the dollar out.”

Another report today showed wholesale prices dropped in May by the most since July 2009 as energy and food costs decreased. The producer price index declined 1 percent, more than forecast, after falling 0.2 percent the prior month, Labor Department figures showed.

Fed Meeting

The Federal Open Market Committee, which sets the course of central bank policy, begins a two-day meeting on June 19. The group may address a cooling expansion, slower job growth and the financial crisis in Europe.

“Will there be enough growth going forward to make material progress on the unemployment rate?” Fed Chairman Ben S. Bernanke said in testimony last week to the Joint Economic Committee. “That’s the essential decision and the central question that we have who look at.”

Eight of 13 major retail categories showed sales declines last month, led by building materials merchants, service stations and general merchandise stores, according to today’s Commerce Department report.

Sales at automobile dealers showed an unexpected gain, in contrast to industry figures, which are the ones used to calculate GDP. They climbed 0.8 percent in May after a 0.1 percent increase the prior month.

Read More: http://www.bloomberg.com/news/2012-06-13/retail-sales-in-u-s-fall-for-second-month-signaling-slowdown.html

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