Growth Pangs
Drop in retail spending could hamper recovery
WASHINGTON – Americans are pulling back on their spending, a trend that could slow the economic recovery if it continues.
A sharp drop in retail sales points to still-wary shoppers and could lead economists to curtail their expectations for growth.
Analysts cautioned against overreacting to Friday’s Commerce Department report. It could signal a return to modest growth after two unusually strong months fueled by tax refunds, rebates for energy-efficient appliances and higher gas prices.
The 1.2 percent plunge in retail sales was the largest drop in eight months. But excluding three of the most volatile sectors – autos, building materials and gasoline station sales – retail sales actually rose one-tenth of a percentage point in May.
Still, economists are concerned that spending won’t pick up in months ahead. Households are still facing near-double-digit unemployment. Private employers are not hiring fast enough to bring that number down. Anxiety has gripped the stock market, partly because of the European debt crisis.
Any sustained pullback by shoppers could threaten the recovery because consumer spending accounts for 70 percent of economic activity.
The overall economy, as measured by the gross domestic product, grew at an annual rate of 3 percent in the first three months of this year. Much of that resulted from a 3.5 percent expansion in consumer spending – the best showing for this category in three years.
Some economists cautioned that estimates of growth for the current quarter might have to be scaled back.
The sharp decline in retail sales “is a reminder that households are not going to be the engine of growth for some time,” said Paul Dales, U.S. economist for Capital Economics.
Contributing to the weakness is a shortage of hiring. Most economists don’t expect the unemployment rate of 9.7 percent to fall much in the coming months.
Pulling the May number down was a 9.3 percent drop in building materials. But that came after two strong months for the industry. Another key factor was a 3.3 percent drop in gasoline station sales, which were affected by lower gas prices.
Auto sales fell 1.7 percent. Excluding autos, overall retail sales fell 1.1 percent.