US economy appears weaker as retail sales slump
WASHINGTON (AP) – The outlook for the U.S. economy appeared dimmer Monday after a report that Americans spent less at retail businesses for a third straight month in June.
The report led some economists to downgrade their estimates for economic growth in the April-June quarter. Many now think the economy grew even less than in the first quarter of the year, when it expanded at a sluggish 1.9 percent annual rate.
Spending in June fell in nearly every major category – from autos, furniture and appliances to building, garden supplies and department stores. Overall, retail sales slid 0.5 percent from May to June, the Commerce Department said.
Retail sales hadn’t fallen for three straight months since the fall of 2008, at the height of the financial crisis.
The weak U.S. spending figures were announced on the same day that the International Monetary Fund slightly lowered its outlook for global growth over the next two years.
Stocks fell after the Commerce report was released. The Dow Jones industrial average sank 74 points in early trading. Broader indexes also declined. Later in the morning, stocks regained some of their losses.
“However hard you look, there’s just no good news in this report at all,” said Paul Ashworth, chief U.S. economist at Capital Economics.
Sales were still 4.7 percent higher in the April-June period than in the second quarter of 2011. And retail sales don’t include spending on services, which represents a larger portion of the economy.
Still, Ashworth said overall economic growth likely slowed to an annual rate of just 1.5 percent in the second quarter. That’s isn’t enough to lower high unemployment. The U.S. unemployment rate is 8.2 percent.
In Monday’s report, the Commerce Department also said Americans spent less in April than previously thought. In part because of that, Michael Feroli, an economist at JPMorgan Chase, lowered his estimate of growth in the April-June quarter from a 1.7 percent annual rate to a 1.4 percent rate.
Some of the sting of the retail sales report was eased by a separate Commerce report Monday that U.S. companies added to their stockpiles in May. When businesses step up restocking, they tend to order more goods, leading to more factory production and economic growth.
The weak retail sales in recent months reflect, in part, falling gas prices. But even excluding sales at gas stations, retail spending fell 0.3 percent from May to June.
Consumers have grown less confident in the economy. Hiring has slumped and wages have barely kept pace with inflation, keeping budgets tight. As a result, consumers have pulled back on their spending, which drives 70 percent of economic activity.
“Recent weak jobs data have certainly done nothing to alter our view that consumer spending growth will be very modest at best in the quarters ahead,” said Joshua Shapiro, chief U.S. economist at MFR Inc. “A silver lining in the economic clouds is that lower gasoline prices are helping to cushion the consumer.”
The IMF lowered its outlook for global growth over the next two years in part because of Europe’s financial crisis and slower expansion in China and India.
The international lending organization predicts global growth of 3.5 percent this year, down from its forecast of 3.6 percent in April. It cut its forecast for 2013 to 3.9 percent growth, from 4.1 percent three months ago.
The IMF also shaved its forecast for U.S. growth to 2 percent this year and 2.3 percent next year, both slightly below its previous estimates.
Still, factory activity in the New York region is growing at a slightly faster pace , according to a survey issued Monday. The Federal Reserve Bank of New York said its Empire State manufacturing index increased to 7.4 in July from a reading of 2.3 in June. Any number above zero indicates growth.
The retail spending report showed that sales at auto dealers – one of the economy’s strongest areas this year – fell 0.6 percent from May to June. That’s a gloomier assessment of the industry than earlier reports from automakers had suggested.
The automakers said sales rose 22 percent in June from the same month in 2011. But the automakers don’t adjust their sales data for seasonal changes. And their figures reflect changes from the same month in the previous year, not from month to month.
The weakness in June extended well beyond auto sales. The Commerce report showed sales fell 0.7 percent at department stores and 1.6 percent at building supply stores. Sales at furniture stores and electronics and appliance stores both fell 0.8 percent.
Sales at gas stations dropped 1.8 percent after a 2 percent drop in May. The declines reflected cheaper gas, which has dropped more than 50 cents since early April.
The economy is expanding too slowly to lower the unemployment rate. Employers have created an average of just 75,000 jobs a month in the April-June quarter – only about a third of the monthly job growth during the previous three months.