US economy appears weaker as retail sales slump

WASHINGTON (AP) — The out­look for the U.S. econ­omy appeared dim­mer Mon­day after a report that Amer­i­cans spent less at retail busi­nesses for a third straight month in June.

The report led some econ­o­mists to down­grade their esti­mates for eco­nomic growth in the April-June quar­ter. Many now think the econ­omy grew even less than in the first quar­ter of the year, when it expanded at a slug­gish 1.9 per­cent annual rate.

Spend­ing in June fell in nearly every major cat­e­gory — from autos, fur­ni­ture and appli­ances to build­ing, gar­den sup­plies and depart­ment stores. Over­all, retail sales slid 0.5 per­cent from May to June, the Com­merce Depart­ment said.

Retail sales hadn’t fallen for three straight months since the fall of 2008, at the height of the finan­cial crisis.

The weak U.S. spend­ing fig­ures were announced on the same day that the Inter­na­tional Mon­e­tary Fund slightly low­ered its out­look for global growth over the next two years.

Stocks fell after the Com­merce report was released. The Dow Jones indus­trial aver­age sank 74 points in early trad­ing. Broader indexes also declined. Later in the morn­ing, stocks regained some of their losses.

“How­ever hard you look, there’s just no good news in this report at all,” said Paul Ash­worth, chief U.S. econ­o­mist at Cap­i­tal Economics.

Weak­en­ing retail spend­ing could make the Fed­eral Reserve more likely to take fur­ther steps to try to lower long-term inter­est rates to encour­age more bor­row­ing and spend­ing. The Fed’s pol­icy com­mit­tee will meet at the end of this month.

Most econ­o­mists don’t expect the Fed to announce new action after that meet­ing. But some said Monday’s Com­merce report, com­ing after three straight months of tepid hir­ing, makes Fed action more likely before year’s end.

Retail sales were still 4.7 per­cent higher in the April-June period than in the sec­ond quar­ter of 2011. And retail sales don’t include spend­ing on ser­vices, which rep­re­sents a larger por­tion of the economy.

Still, Ash­worth said over­all eco­nomic growth likely slowed to an annual rate of just 1.5 per­cent in the sec­ond quar­ter. That’s isn’t enough to lower high unem­ploy­ment. The U.S. unem­ploy­ment rate is 8.2 percent.

In Monday’s report, the Com­merce Depart­ment also said Amer­i­cans spent less in April than pre­vi­ously thought. In part because of that, Michael Fer­oli, an econ­o­mist at JPMor­gan Chase, low­ered his esti­mate of growth in the April-June quar­ter from a 1.7 per­cent annual rate to a 1.4 per­cent rate.

Chris G. Christo­pher Jr., senior econ­o­mist at IHS Global Insight, said IHS thinks the econ­omy grew at an annual rate of just 1.3 per­cent in the April-June quar­ter. And it isn’t expect­ing much of a pickup in the sec­ond half of 2012: The annual growth rate will likely stay below 2 per­cent in both the third and fourth quar­ters, he said.

Christo­pher said the biggest prob­lem is mea­ger job growth. Con­sumers have also been rat­tled by gyrat­ing stock prices stem­ming from Europe’s debt crisis.

“Con­sumers are get­ting hit from all sides at the moment,” Christo­pher said, despite the ben­e­fit of sharply lower gas prices since April.

Lewis Tipo­graph, owner of Kids’ Closet, a mid-priced children’s cloth­ing store in Wash­ing­ton, D.C. said his busi­ness has suf­fered since April. Cus­tomers are grow­ing uneasy, he said.

“Ear­lier in the year, peo­ple were feel­ing more opti­mistic,” Tipo­graph said. “There was a con­ver­gence of a lot of good things. But now, peo­ple are feel­ing nervous.”

Some of the sting of Monday’s retail sales report was eased by a sep­a­rate Com­merce report that U.S. com­pa­nies added to their stock­piles in May. When busi­nesses step up restock­ing, they tend to order more goods, lead­ing to more fac­tory pro­duc­tion and eco­nomic growth.

The decline in retail sales reflects, in part, falling gas prices. But even exclud­ing sales at gas sta­tions, retail spend­ing fell 0.3 per­cent from May to June.

As hir­ing has slumped, pay has barely kept pace with infla­tion. As a result, con­sumers have pulled back on their spend­ing, which dri­ves 70 per­cent of eco­nomic activity.

“Recent weak jobs data have cer­tainly done noth­ing to alter our view that con­sumer spend­ing growth will be very mod­est at best in the quar­ters ahead,” said Joshua Shapiro, chief U.S. econ­o­mist at MFR Inc. “A sil­ver lin­ing in the eco­nomic clouds is that lower gaso­line prices are help­ing to cush­ion the consumer.”

The IMF low­ered its out­look for global growth over the next two years in part because of Europe’s finan­cial cri­sis and slower expan­sion in China and India.

The inter­na­tional lend­ing orga­ni­za­tion pre­dicts global growth of 3.5 per­cent this year, down from its fore­cast of 3.6 per­cent in April. It cut its fore­cast for 2013 to 3.9 per­cent growth, from 4.1 per­cent three months ago.

The IMF also shaved its fore­cast for U.S. growth to 2 per­cent this year and 2.3 per­cent next year, both slightly below its pre­vi­ous estimates.

Still, fac­tory activ­ity in the New York region is grow­ing at a slightly faster pace , accord­ing to a sur­vey issued Mon­day. The Fed­eral Reserve Bank of New York said its Empire State man­u­fac­tur­ing index increased to 7.4 in July from a read­ing of 2.3 in June. Any num­ber above zero indi­cates growth.

The retail spend­ing report showed that sales at auto deal­ers — one of the economy’s strongest areas this year — fell 0.6 per­cent from May to June. That’s a gloomier assess­ment of the indus­try than ear­lier reports from automak­ers had suggested.

The automak­ers said sales rose 22 per­cent in June from the same month in 2011. But the automak­ers don’t adjust their sales data for sea­sonal changes. And their fig­ures reflect changes from the same month in the pre­vi­ous year, not from month to month.

The weak­ness in June extended well beyond auto sales. The Com­merce report showed sales fell 0.7 per­cent at depart­ment stores and 1.6 per­cent at build­ing sup­ply stores. Sales at fur­ni­ture stores and elec­tron­ics and appli­ance stores both fell 0.8 percent.

Sales at gas sta­tions dropped 1.8 per­cent after a 2 per­cent drop in May. The declines reflected cheaper gas, which has dropped more than 50 cents since early April.

The econ­omy is expand­ing too slowly to lower the unem­ploy­ment rate. Employ­ers have cre­ated an aver­age of just 75,000 jobs a month in the April-June quar­ter — only about a third of the monthly job growth dur­ing the pre­vi­ous three months.

Posted by Randa Wagner on Jul 16 2012. You can follow any responses to this entry through the RSS Feed. Both comments and pings are currently closed.