Retail Sales Off 0.6% in May; Cars Lead Decline

Retail sales fell 0.6% in May, the biggest decline in four months, the government said Thursday in a report that raised new concerns among economists about a possible recession.

The Commerce Department said sales dipped to a seasonally adjusted $124 billion last month, following a 0.2% April increase.

Since February, retail sales have been essentially flat as consumers, burdened by high debt levels and weak personal-income growth, have cut back sharply on purchases of discretionary items such as cars and furniture.

Consumer spending, which accounts for two-thirds of overall economic activity, has been the driving force behind the nation’s recovery from the 1981-’82 recession.

Spending this year is expected to increase by only 2%, half the 1986 growth rate. Analysts said if this scaled-back forecast proves too optimistic, then the recovery could be in substantial danger.

“The retail sales report makes me nervous. I would have liked to have seen more activity outside of autos and we just didn’t get it,” said Sandra Shaber, economist at the Futures Group, a Washington forecasting firm. “If consumers are more seriously tightening their belts, then that could cause a recession.”

The weakness last month was led by a big 3.8% drop in auto sales, the largest monthly decline in this category since January. Excluding autos, retail sales would have risen a tiny 0.3%, but analysts said most of this advance came in higher prices rather than in an increased volume of sales.

“The retail sales figures look pretty weak,” said Bruce Steinberg, a senior economist at the New York investment firm of Merrill Lynch. “Consumer spending will rise much more slowly than it did in 1986 because income growth is very weak and savings are virtually non-existent. That is having a significant constraint on consumer spending.”

Deborah Johnson, senior economist at Prudential-Bache Securities in New York, predicted that overall economic growth, as measured by the gross national product, would probably not top 2% this year. That would be even slower than the 2.5% GNP growth in 1986, a year in which the overall economy was held back by a slump in manufacturing.

“Now we are beginning to see a little bit of an upturn in the industrial sector, but that will probably be offset by a weak consumer,” she said. “We are not worried about a recession right now, but if interest rates push up a lot higher, you would have to begin to worry.”

The 0.6% drop in retail sales in May was the biggest decline since a record plunge of 7.1% last January.

Sales of furniture and other home furnishings fell 0.8% last month following a 0.5% decline in April while sales at hardware stores edged up 0.3% in May following a big 3.2% drop in April.

The total category of durable goods, items designed to last three or more years, fell 2.5% in May following a tiny 0.1% gain in April.

Sales of non-durable goods were up 0.6% in May following a smaller 0.2% increase in April.

In this category, sales at department stores and other general merchandise stores rose 0.8% in May following a 0.5% rise in April.

Sales at apparel specialty stores were up 1.3%, the biggest increase of any category, followed by a 0.8% increase in sales at gasoline stations.