Drop in U.S. retail sales points to slower growth

BLOOMBERG — 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% decrease matched April’s drop that was previously reported as a gain, according to Commerce Department figures released Wednesday (June 13). Sales excluding car dealerships slumped by the most in two years.

The smallest wage gains in a year and unemployment exceeding 8% are taking a toll on the consumer spending that accounts for about 70% 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, N.C., who correctly forecast the drop in sales. “There isn’t a lot of job creation. We will continue to see softer numbers.”

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% to a gain of 0.5%. April and May marked the first back-to-back declines in two years.

LOWER GDP ESTIMATES
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% gain from 1.8%. Morgan Stanley cut its projection 0.2 percentage point, to 1.8%, while Credit Suisse marked down GDP for the period to 2.2% from 2.5%.

“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.”

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

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.”

AUTO SALES
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% in May after a 0.1% increase the prior month.

Cars and light trucks sold at a 13.7 million annual rate in May, the weakest this year and down from April’s 14.4 million pace, Ward’s Automotive Group data showed. Year-over-year gains of 11% at General Motors Co. and 30% at Chrysler Group LLC trailed analysts’ projections. Ford Motor Co., the only major automaker who topped estimates with a 13% increase in sales, boosted incentives by about $100 per vehicle.

ELECTRONICS SALES UP
Retail sales excluding autos decreased 0.4%, the weakest performance since May 2010. They were projected to be unchanged, the survey median showed.

The retail sales data, which aren’t adjusted for prices, reflected lower gasoline receipts at service stations, where demand dropped 2.2% in May, the most this year. A gallon of regular fuel at the pump cost an average $3.71 in May, down from this year’s peak of $3.94 on April 4, according to AAA, the biggest U.S. auto group. It was down to $3.54 yesterday.

Spending increased 0.9% at clothing stores and 0.8% at electronics chains. Sales excluding autos, gasoline and building materials, which are the figures used to calculate GDP, were little changed in May after rising 0.1%, today’s report showed. The April advance was previously reported at 0.4%.

Monthly employment gains have decelerated from a high this year of 275,000 in January. Payrolls rose 69,000 in May after a 77,000 increase in April, according to data from the Labor Department. The jobless rate climbed to 8.2% from 8.1%. Average hourly earnings rose 1.7% last month from May 2011, the smallest increase since December 2010.