WASHINGTON (AP) — A big drop in May retail sales has raised new concerns about the durability of the economic recovery.
Retail sales plunged 1.2 percent last month, the Commerce Department said Friday. It was the largest decline in eight months.
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.
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. Investors have sold off stocks for more than a month because of concerns that Europe’s sovereign debt crisis will slow a worldwide economic rebound. The Dow Jones industrial average fell 7.9 percent last month, the worst May for the blue chip index since 1940.
A separate Commerce report Friday 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.
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.
Pulling down the overall May number was a 9.3 percent plunge in building materials. That follows the expiration of a tax credit for homebuyers in April that spurred home sales this spring.
Department store sales fell 1.8 percent while sales in the broader category of general merchandise stores, which includes big retailers such as Wal-Mart, 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.
The Federal Reserve reported Thursday that households’ net worth rose for the fourth consecutive quarter, but since then stock prices have been tumbling. Economists say it may not be until 2012 or 2013 at best before Americans’ wealth returns to its pre-recession levels.
Last week, the International Council of Shopping Centers reported that its index for revenue at stores open at least a year posted a 2.6 percent rise in May compared to sales in May 2009. That followed a 0.8 percent April increase and a 9 percent surge in March.
Target Corp. posted a small gain in May that was below internal forecasts while department store chain J.C. Penney Co. and many teen merchants including Abercrombie & Fitch Co. and American Eagle Outfitters Inc. reported declines in revenue at stores open at least a year.
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