June 15, 2011 in Business

Lower gas, food prices ease economic worry

Christopher S. Rugaber Associated Press
Associated Press photo

Shoppers wait in the checkout line at Costco in Mountain View, Calif., Monday.
(Full-size photo)

Auto sales a drag on economy

Americans bought fewer cars in May, sending retail sales down 0.2 percent, the first decline after 10 months of gains.

Supply disruptions: Some of the decline in auto sales, which fell by the largest amount in 15 months, likely reflected supply disruptions from Japan’s natural disasters. That made it hard for U.S. dealers to get some popular car models.

Outlook: Economists surveyed by the Associated Press believe the economy will show only modest growth in the current April-June quarter, reflecting the impact of higher gas prices on consumers’ ability to spend on other items.

WASHINGTON – Americans are finally getting some relief from high gas and food prices.

Wholesale food prices fell last month by the most in nearly a year, and gas prices keep dropping after peaking in May. A separate survey suggests CEOs are feeling more optimistic and will hire more in the second half of this year.

It amounted to welcome news Tuesday after a rough patch that has stoked worries the economic recovery is slowing. More jobs and lower prices would both give Americans more money to spend on other things and rejuvenate economic growth.

Food prices at the wholesale level fell 1.4 percent, the Labor Department said. It was the largest drop since last June. About 40 percent of that decline resulted from steep declines in vegetable and fruit prices.

The drop in food prices followed harsh winter freezes, which had driven up prices of tomatoes and other vegetables in February. Even if prices don’t fall further, economists say they probably won’t go much higher, at least.

It may take as long as six months, but lower wholesale prices should work their way to the grocery store.

“That’s a good thing for consumers, and it’s even better that it comes in parallel with lower energy prices,” said Gregory Daco, U.S. economist at IHS Global Insight.

Overall, the producer price index, which measures price changes before they reach the consumer, rose 0.2 percent in May. That’s much lower than April’s 0.8 percent gain and signals that inflation is in check.

Gas prices at the wholesale level rose in May by the smallest amount in eight months. At the pump, they’re coming down. On Tuesday, the national average was $3.70 a gallon, according to AAA. Gas has fallen steadily since the national average almost hit $4 a gallon in early May. It’s still about a dollar more expensive than a year ago.

For now, Americans remain cautious about spending. Another report Tuesday showed that retail sales fell 0.2 percent in May. It was the first decline in 11 months and came mostly because Americans bought fewer cars. Auto sales fell 2.9 percent.

Excluding the drop in car sales, retail sales rose 0.3 percent. That gain seemed to please investors, who were expecting broad declines because of high gas prices. The Dow Jones industrial average, which has fallen six weeks in a row, closed up 123 points, or 1 percent.

Some of the biggest sales gains were reported by thrift shops and other stores that sell used goods, and by online retailers, which many shoppers use to find the best deals.

There were some encouraging signs that hiring could pick up in the second half of the year. The Business Roundtable, which represents CEOs for the 200 biggest U.S. companies, said 51 percent of chief executives plan to step up hiring in the second half of the year.

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