Spending by Consumers Slows Abruptly in April

Consumers turned cautious in April, cutting spending on clothing, furniture and dining out, while import prices plunged at their sharpest rate ever, the government said Wednesday.

The Commerce Department said retail sales slid 0.1% in April, while economists were expecting a gain of 0.4%. Excluding automobiles, sales slumped 0.9%, the biggest monthly drop since the terrorist attacks.

“The consumer is starting out the second quarter on a very weak note,” said economist Chris Rupkey at Bank of Tokyo-Mitsubishi Ltd in New York.

Also worrying to economists was a 2.7% drop in import prices in April reported by the Labor Department.

The record decline in import prices comes as the Federal Reserve keeps an eye on the risk of deflation, the economy-wide drop in prices that is now plaguing Japan. So far, U.S. prices are still rising overall, albeit slowly.

While soggy, the latest retail sales data came on the heels of very strong consumer demand in March. Retail sales for that month were revised up to a 2.3% gain from a previously reported 2.1% rise. The rise excluding automobiles for March was bumped up to 1.5% from 1.2%.

Both the April retail sales report and the import price report were skewed by a huge fall in oil prices, which came amid the U.S. victory in Iraq.

Purchases at gasoline stations, which make up nearly 7% of total retail sales, fell 5.9% in April. But that drop reflected the lower dollar value for gasoline rather than a significant cutback in purchases of fuel.

Stripping out gasoline, retail sales rose 0.4%. In the import price report, petroleum costs fell 16.2%. Prices of nonpetroleum products fell only 0.9%.

The retail sales data showed that clothing purchases slid 3.2%. Receipts at restaurants and bars eased 0.5% and sales of furniture and home furnishings fell 0.3%. Aggressive financing incentives helped lure consumers to car dealerships. Sales of motor vehicles and parts surged 2.5% in April and 5% in March.

“Even though consumers may have been somewhat reluctant to buy a T-shirt or a pair of slacks, the fact that they were willing to spend tens of thousands of dollars on new cars still keeps me convinced that the invisible consumer is still standing,” said Anthony Chan, chief economist at Bank One Investment Advisors in Columbus, Ohio.