May Retail Sales Slip 0.8% After a Strong April

Retail sales sagged 0.8% to a seasonally adjusted $113.68 billion in May, the sharpest drop since last summer, but some private analysts agreed with the Reagan Administration that consumer demand remains adequate to sustain modest economic growth.

“The expansion still has a green light,” Commerce Secretary Malcolm Baldrige said.

The optimism is based on viewing the May slump against a revised 2.4% increase in April sales from a 0.9% increase reported last month by the Commerce Department.

Rob Wescott of Wharton Econometrics said, “The fact that May was only a little lower than April suggests we’re not looking at an economy as weak as might be indicated if you looked at May alone.

“It does suggest there is underlying upward movement in consumer demand,” he added. “Some of this in May was just a correction from the huge jump in April.”

Baldrige said “consumer demands are growing at a healthy pace” and predicted that June spending would be boosted by income tax refunds.

Moreover, Baldrige said, “the recent easing of credit conditions will strengthen domestic demand and offset some of the loss of sales to foreign producers.”

Robert A. Gough Jr. of Data Resources Inc., was considerably more pessimistic about the May sales figures.

He said that April is historically a big month for consumer spending, even when seasonal variations are included, and suggested that the magnitude of the May decline “indicates more than just a correction for April.”

“What concerns me is that it was almost uniformly weak across the board,” said Gough, noting in particular an 0.8% drop in department store sales.

“When the consumer stops shopping--casual shopping at department stores rather than serious shopping for big-ticket durables--it is usually a signal the consumer is getting jittery,” he said.

At the same time, Gough emphasized that he views any consumer nervousness more as “self-doubt” than any fundamental concern about the economy.

The May decline was marked by a 2.2% drop in durable goods purchases, including a 6.2% plunge in building materials and a 3% skid in auto purchases. Furniture purchases, on the other hand, rose 4.8%.

Non-durable goods purchases held steady in May, despite the department store slump and a 1.3% decline in grocery store purchases.