Sales improve slightly in May, following larger April drop; ex-auto sales lower than forecast.
June 12, 2003: 9:50 AM EDT
NEW YORK (CNN/Money) - U.S. retail sales rose a bit in May, the government said Thursday, with strong sales of clothing, electronics and furniture weighed down by a slump in auto sales and falling gasoline prices.
Retail sales rose 0.1 percent to $308.8 billion after falling a revised 0.3 percent in April, the Commerce Department reported.
Excluding auto sales, retail sales rose 0.1 percent after falling 0.9 percent in April. Economists, on average, expected total sales to be flat and sales excluding autos to rise 0.2 percent, according to a Reuters poll.
Much of the decline in May retail sales was due to a post-war drop in oil and gasoline prices. Sales at gas stations fell 4.3 percent after falling 5.3 percent in April. Excluding gasoline, retail sales rose 0.4 percent.
Of course, unlike economists, consumers who drive cars can't ignore gasoline prices; oil prices have moved higher again, and the last two months' declines in gas prices are likely to be erased this summer.
"I always consider excluding gas prices misleading -- it's an absolute requirement for people," said Delos Smith, economist at the Conference Board, a research firm that publishes a closely watched monthly survey of consumer confidence. "Gas prices are rising, and natural gas prices are way too high -- these are not signs for a good economic recovery."
Several other sectors posted strong gains. Clothing sales rose 1.0 percent after falling 1.8 percent in April. Electronics sales rose 2.9 percent after rising 0.8 percent in April. Furniture sales rose 1.1 percent after rising 0.5 percent in April.
Separately, the Labor Department said weekly claims for unemployment benefits dipped to 430,000 in the week ended June 7 from a revised 447,000 the prior week. Economists, on average, expected 424,000 new claims, according to Reuters.
U.S. stock prices had little reaction to the reports, moving higher in early trading. Treasury bond prices were mixed.
Wall Street pays close attention to consumer spending, which makes up more than two-thirds of the total economy. Helped along by super-low interest rates that have cut the cost of borrowing -- especially mortgage borrowing -- consumers have kept spending despite a recession and terror attacks in 2001, corporate scandals in 2002, war in 2003 and a prolonged bear market in stocks.
Still, Federal Reserve policy makers, after cutting their key short-term interest rate 12 times in 2001 and 2002, are widely expected to cut the rate again at their meeting on June 24 and 25.
Though they and other economists still believe low rates, tax cuts, higher stock prices and other stimuli will boost the economy in the second half, Fed officials have spoken recently about a need to make sure economic weakness doesn't linger long enough to fuel deflation, an unstoppable drop in prices that hurts corporate profits and hurts economic growth.
In a troublesome sign that should only stoke fears of deflation, import prices fell in May, following an even bigger drop in April, despite lingering weakness in the U.S. dollar against some major currencies. Ordinarily, a falling dollar would make import prices rise. But since China, one of the world's biggest exporters to the United States, pegs its currency to the dollar, it is immune to dollar declines.
With recent economic data mixed at best, and most economists having already been wrong about the size of a post-war bounce in the economy, the drumbeat for a rate cut has been building steadily.
"The members of the [Fed's policy-making committee] cannot be happy," said Joel Naroff, president and chief economist of Naroff Economic Advisors in Holland, Pa. "They need to see robust consumption, but they are not getting it, at least not yet. When you add in the drop in import prices, the stage is being set for another rate cut."
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