Wholesale Prices, Retail Sales Fall

Retail sales in May suffered their sharpest decline in six months while wholesale prices fell as energy costs tumbled, according to government data released Thursday.

The reports led some economists to predict that the Federal Reserve will further delay increasing interest rates, amid mounting signs of a weak economic recovery and fears of a consumer spending slowdown.

Although investors drove down retail and other stocks in reaction to the data, the sluggishness in retail spending last month may have had more to do with weather than with consumer weakness, some analysts said.

Unusually cool temperatures throughout the northern part of the country, particularly in the first three weeks of May, along with a wetter-than-usual spell in the Midwest, dampened sales of summer clothing, building supplies and other outdoor merchandise, retailers said.

This month, sales at giant discounters Wal-Mart Stores Inc. and Target Corp. are up more than expected, those retailers say.

“The weakness in retail sales raises the specter that consumers are pulling back,” said Michael Niemira, an economist and retail analyst with Bank of Tokyo-Mitsubishi in New York. “I just don’t think so. I think it’s a pause after the strength of April numbers that was accentuated by weather.”

Retail sales dropped 0.9% in May from the month before, three times the drop economists had expected and the biggest decline since November 2001.

May sales, however, were 1.9% above the same period a year ago, according to Commerce Department data.

Excluding decreases in auto and gasoline sales, retail sales fell 0.1% in May, the first decline since September, the Commerce Department said.

“However, these declines followed a surge of 1.2% in April,” said Steven Wieting, Salomon Smith Barney’s senior U.S. economist. “In addition, early June chain store sales data have been very encouraging.”

Still, based on Thursday’s retail sales data, economists at Lehman Bros. pushed back until December their forecast for when the Fed will start raising interest rates. Bear, Stearns & Co. switched its call on the first increase to November. Both firms had been forecasting a September rate rise. The Fed’s policy-setting committee next meets June 25-26.

Meanwhile, in another sign of a lack of inflationary pressures, wholesale prices paid to factories, farmers and other producers--as measured by the producer price index--unexpectedly dropped 0.4%. That was the largest drop since December and followed a decline of 0.2% the previous month, the Labor Department said. Analysts were expecting a rise of 0.1%.

Energy prices dropped 2.3%, pulled down by a 9.6% fall in gasoline prices. Food prices declined 0.2%.

Even when volatile food and energy prices were stripped out, the report showed inflation was under control.

So-called core prices were flat, also lower than the 0.1% climb expected by analysts. That followed a 0.1% rise in April.

The number of U.S. workers filing new claims for state unemployment benefits rose less than expected last week, suggesting companies are under less pressure to eliminate jobs.

States received 390,000 initial jobless benefits claims in the week that ended Saturday, up from a one-year low of 384,000 in the week before last, the Labor Department said.

That marked the second straight week below 400,000, which hasn’t happened since mid-March.

Among retailing stocks, Wal-Mart fell $1.80 to $56.50 and Target dropped $1.33 to $38.88, both on the New York Stock Exchange.

Bloomberg News and Reuters were used in compiling this report.