Retail Sales Drop in May

WASHINGTON, D.C. -- The Commerce Department reported retail sales plunged 1.2 percent last month -- the largest decline in eight months, according to a report cited by The Associated Press.

It raised new concerns about the durability of the economic recovery, as Americans slashed spending on everything from cars to clothing to building materials. Auto sales fell 1.7 percent. Excluding autos, sales fell 1.1 percent.

The AP reported economists are worried that households will start trimming outlays as they continue to be battered by high unemployment and uncertainty in the stock market. Consumer spending accounts for 70 percent of total economic activity.

There's also concern that spending will freeze up as Americans see their wealth shrink.
A separate Commerce report said business inventories rose 0.4 percent in April for the fourth consecutive month of gains. Business sales climbed 0.6 percent in April for the 13th straight monthly increase.

The AP reported some economists cautioned against overreacting to the gloomy May retail sales report because the numbers can be volatile from month to month. But they said if future months show weakness, then they will be forced to trim their estimates for overall economic growth in the second half of this year.

The overall economy, as measured by the gross domestic product, grew at an annual rate of 3 percent in the first three months of this year. Much of that was the result of a 3.5-percent expansion in consumer spending -- the best showing for this category in three years.

The sharp decline in U.S. retail sales in May "dramatically weakens the outlook for consumption growth in the second quarter ... and is a reminder that households are not going to be the engine of growth for some time," said Paul Dales, U.S. economist for Capital Economics.

Analysts said the key will be employment and income growth in the months ahead. But most expect the unemployment rate of 9.7 percent won't fall much in the coming months.

"Our own view is that the labor market recovery will be a grudging one, that consumers will enjoy only modest gains in wages and salaries for some time and that consumer spending growth will therefore prove disappointing," said Joshua Shapiro, chief U.S. economist at MFR Inc., an economic consulting firm in New York.

The decline in May retail sales was the largest since sales had fallen 2.2 percent in September. The government did revise up slightly the April performance to show a gain of 0.6 percent for the month instead of the originally reported 0.4 percent increase.
Department store sales fell 1.8 percent while sales in the broader category of general merchandise stores, which includes big retailers such as Walmart, fell 1.1 percent.

Gasoline stations' sales were down 3.3 percent, a drop that reflected in part lower gasoline pump prices during the month.

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