Retail Sales Disappoint, Up 0.5%
Retail sales were weaker than expected in April as soaring gasoline prices forced consumers to cut back on spending in other areas, suggesting that energy costs were beginning to slow the economy.
Retail sales rose by 0.5% last month after a 0.6% advance in March, the Commerce Department reported Thursday.
The April increase was weaker than the 0.8% that Wall Street had been expecting and was disappointing in light of reports last week of strong April sales at the nation’s big chain stores, reflecting warmer-than-usual weather and a late Easter that boosted clothing sales.
The report, which is seasonally adjusted to account for such things as the changing date of Easter, showed that nearly all of the strength last month came from a big 4.6% jump in sales at gasoline stations. That reflected a sharp rise in prices with gasoline selling near $3 per gallon in many parts of the country, up about 50 cents since early March.
Excluding gasoline sales, retail sales rose 0.1% in April, raising concerns among economists about how much strength the consumer sector will provide in coming months if gasoline prices stay elevated.
“When you exclude gasoline sales, which were propelled by huge price increases, households didn’t buy an awful lot in April,” said Joel Naroff, chief economist at Naroff Economic Advisors.
Analysts worried about the effect on the overall economy if consumer demand did weaken. Consumer spending accounts for two-thirds of total economic growth.
“The persistence of high gasoline prices will continue to siphon gains in other retail sales categories in the second quarter,” said Brian Bethune, an economist at Global Insight.
He predicted that consumer spending, which had increased at an annual rate of 5.5% in the first three months of this year, would slow to a 2.8% rate in the current April-June quarter.
The overall economy grew at a sizzling 4.8% rate in the first three months of the year, but analysts believe that growth in the second quarter will slow to around 3.5%.
David Jones, chief economist at DMJ Advisors, said such a slowdown was just what the Federal Reserve is hoping would occur to ensure inflation pressures did not worsen.
He said the retail sales report increased the chances that the Fed, which boosted interest rates for a 16th consecutive time Wednesday, would take a pause at its June meeting to assess the effect its credit-tightening campaign is having on the economy.
Separately, the Labor Department reported that the number of Americans filing new claims for unemployment benefits totaled 324,000 last week, down 1,000 from the previous week.
