Shoppers Help Keep Economy Moving
Retail sales in May beat expectations as shoppers continued to prop up the economy, the government said Thursday. But the upbeat report was tempered by news that business inventories remained weak and unemployment hit a 20-year high.
The Commerce Department said retail sales rose 0.1% in May after falling a revised 0.3% in April, when the Iraq war depressed consumer spending. May sales actually rose a healthy 0.4% when a sharp drop in gasoline sales -- reflecting lower pump prices -- is excluded.
Some of the strongest gains were in sales of furniture -- up 1.1% -- and electronics and appliances, up 2.9%. Increases also were reported in apparel and restaurant sales but spending on building and garden supplies remained flat and automobile sales fell 0.2%, the Commerce Department said.
“It would be nice to see the economy firing on all cylinders,” said Keitaro Matsuda, senior economist at Union Bank of California. “But at least [consumer spending], the biggest part of the economy, has been very strong, and that really has made the most recent economic downturn much milder and more easy to live with.”
Matsuda noted that the healthy housing market and mortgage refinancing boom helped fuel a good deal of the rise at furniture and appliance stores. Home price appreciation and the financial benefits of refinancing are “making people feel more affluent,” Matsuda said.
While consumer spending boosted the economy in May, the business sector remained slack. Business inventories increased 0.1%, below projections and the 0.3% gain in March, according to a separate Commerce Department report issued Thursday. Inventories will remain on the lean side as long as businesses are concerned about the economic outlook and demand for new products remains lackluster, economists said.
“Business inventory growth has slowed in recent months as the run-up to, and start of, hostilities in Iraq pushed business activity to the sidelines,” economist Steven Wood said in a report for the consulting firm Insight Economics.
The sluggish business environment was reflected in jobless claims figures that showed the number of people collecting unemployment benefits grew to about 3.8 million by the end of May, the highest in about 20 years, according to the Labor Department. But the number of new unemployment claims for the week ended May 31 dropped by 17,000 on a seasonally adjusted basis from the previous week to 430,000.
The four-week average of unemployment claims, a more stable measure, rose to 433,750, the Labor Department said.
Although the economy is expected to improve during the remainder of the year, unemployment, which lags behind most other economic activity, is projected to keep rising, in part because the people who have given up looking for work are expected to reenter the job market.
“The unemployment situation will continue to be rocky,” Matsuda said.
