May 14, 2009 in Business

Consumer spending drops in April

Economists surmise Americans are saving more in preparation for job loss or extended furloughs

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WASHINGTON – Retail sales fell in April for a second straight month, dashing hopes that consumer spending was starting to revive and would help end the recession.

Economists said families who are worried about layoffs and unpaid job furloughs are saving more and spending less, delaying the start of a sustained recovery.

The disappointing report helped send stocks down on Wall Street, where the Dow Jones industrial average slid 184 points – more than 2 percent. Other major indexes fell even more sharply.

Retail sales fell 0.4 percent last month, worse than the flat performance many economists had expected, the Commerce Department reported Wednesday.

Retail sales had posted gains in January and February after falling for six straight months. The gains had raised hopes that the crucial consumer sector of the economy might be stabilizing. But the setbacks in March and April retail sales cast doubts on that prospect.

“People are obviously still very nervous and not spending,” said David Wyss, chief economist at Standard & Poor’s in New York. “The economy is still in a recession, and I don’t think we will hit bottom until late summer or early fall.”

Analysts said the economy should benefit in coming months from the tax relief included in the $787 billion stimulus plan Congress passed in February. But the extra $17 a week that the average family will receive won’t translate into a major boost in spending.

Such modest relief is hardly enough to negate the effects of layoffs and employee furloughs, shrunken retirement accounts and home equity, and consumers struggling to boost savings because of fears about the future.

The fall in retail sales in April came even though car sales posted a 0.2 percent increase. Excluding autos, the drop in retail sales would have been 0.5 percent – much worse than the 0.2 percent gain economists had expected.

Sales other than autos showed widespread weakness last month. Demand at department stores and general merchandise stores fell 0.1 percent. Sales at specialty clothing stores dropped 0.5 percent.

Sales also fell in April at furniture stores, electronic and appliance stores, food and beverage stores and gasoline stations, the Commerce Department said.

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