Weak Retail Sales Figures Cast Doubt on Recovery : Economy: Revenue at stores was up 0.2% in May, much lower than the 0.7% forecast. An unexpectedly large wholesale price jump suggests interest rates will not be cut.
Retail sales barely rose in May, the government reported Thursday, raising doubts about the strength of the economic recovery.
Separately, the government also said that inflation at the wholesale level in May was unexpectedly high, prompting concerns that the Federal Reserve may be more reluctant to stimulate the economy by easing credit because financial markets may now be more worried about the prospect of a rise in inflation, economists said.
Sales at the retail level rose just 0.2% in May, the Commerce Department said--much weaker than the 0.7% increase many economists expected. Moreover, the department revised the 0.9% rise reported for April to a 0.4% gain, showing that the first two months of the second quarter have been marked by lackluster sales.
Since consumer spending accounts for two-thirds of economic activity, economists expressed concern.
“This is very disappointing,” said Joseph A. Wahed, chief economist at Wells Fargo Bank in San Francisco. “This shows the fragility of the economy. The sales are shockingly slow.”
Reacting to the retail sales report, some major retailers expressed pessimism about prospects for a clear-cut recovery in the near future. “The recession is bottoming out, but it isn’t over,” said Ann Barkelew, spokeswoman for Minneapolis-based Dayton Hudson Corp., the largest retailer in California and the owner of Mervyn’s and Target stores. “We expect to see some recovery in the second half, but it will be very gradual.”
Recent polls have shown an increase in consumer confidence, prompting some to believe that an economic resurgence is at hand. However, many economists say consumers are still skittish about their financial future.
“Being confident is one thing, but spending is another matter,” said Brian Jones, an economist at Salomon Bros. in New York. “It’s clear that the recovery will not be as robust as many expected.”
The second half will be critical, economists say.
“If we do not see a pickup in spending in the next few months, there would be cause for concern,” said Lynn Reaser, chief economist at First Interstate in Los Angeles. “If the situation doesn’t improve in the next few months, we might not see improvements in employment and productivity later this year.”
There were some bright spots in the Commerce Department report, though. Automobile sales were strong.
But the market for apparel and building materials such as lumber, paint and hardware was very weak. Sales of some durable goods were also very weak, according to retailers.
“The weather has had an impact on the sales of air conditioners and lawn (care) equipment,” said Gordon Jones, a spokesman for Chicago-based Sears, Roebuck & Co. “It’s been dry and cool in the Midwest and the Northeast.”
General merchandise sales rose about 0.8% in May, but sales at discount outlets--not department stores--accounted for most of that rise, analysts said. Rosalind Wells, a retail economist at NPD Group, a market research firm in Port Washington, N.Y., said many department store retailers launched special sales promotions to attract buyers.
“It’s a bit disappointing,” she said. “We thought there would be more of a pickup in sales, but business is still sluggish.”
In other disappointing news, the Labor Department said the producer price index, which measures inflation at the wholesale level, rose an unexpectedly high 0.4% last month. It was the biggest increase since a 1.1% rise in October, 1990.
The “core rate” of inflation, which excludes the volatile food and energy sector, also moved up more than expected, rising 0.6%, the Labor Department said. However, most of the increase was attributable to jumps in tobacco and aircraft prices, and some analysts said they are unlikely to affect price rises overall.
Without a 7.3% rise in tobacco prices--the largest monthly gain since an 11% increase in October, 1982--the core rate would have met expectations of a 0.3% increase, economists said.
Also Thursday, the Labor Department said the number of Americans filing new claims for unemployment benefits failed to improve during the last week of May, although a closely watched four-week moving average fell to its lowest level in 19 months.
The Labor Department said the number of Americans seeking jobless benefits stood at 407,000 for the week ending May 30, exactly where it was the previous week.
While the unchanged jobless figure was disappointing, analysts noted that the four-week moving averaged declined to 406,000, its lowest level since October, 1990. Since week-to-week changes in unemployment benefit applications can be extremely volatile, economists prefer to track the four-week average as a better indication of where the labor market is headed.
Retail Sales
Seasonally adjusted, billions of dollars
May, ‘92: $158.8
April, ‘92: $152.7
May, ‘91: $152.7
Source: Commerce Department
Producer Price Index
For finished goods
Seasonally adjusted change from prior month
May, ‘92: +0.4%
April, ‘92: 0.0%
May, ‘91: +0.2%
