Economy appears weaker as retail sales slump
WASHINGTON — 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.
“However hard you look, there’s just no good news in this report,” said Paul Ashworth, chief U.S. economist at Capital Economics.
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.
Despite the lackluster spending in April through June, retail sales were still 4.7 percent higher in the second quarter than the same period in 2011. And the figures don’t include spending on services, which make up about two-thirds of consumer purchases. Services range from doctor’s visits and plane tickets to rent payments and utility bills.
Spending figures for services aren’t yet available for June. But consumers have spent more on services each month this year.
Still, Ashworth said economic growth likely slowed to an annual rate of just 1.5 percent in the second quarter.
Some of the sting of Monday’s retail sales report was eased by a separate Commerce report 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.
Some hope also emerged from continued gains in “nonstore”sales — a category that consists mainly of online purchases. E-commerce sales have strengthened in the past year and now account for 9 percent of retail purchases.
“You’re definitely seeing a major shift in spending,” New York-based retail consultant Walter Loeb said.
The weak U.S. spending figures were released on the same day that the International Monetary Fund slightly 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 in April of 3.6 percent. It cut its forecast for 2013 to 3.9 percent growth from 4.1 percent.
Weakening U.S. retail spending could make the Federal Reserve more likely to act further to try to encourage more borrowing and spending by lowering long-term interest rates. The Fed’s policy committee will meet at the end of this month.
Most economists don’t expect new Fed action after that meeting. But some said Monday’s Commerce report, coming after three straight months of tepid hiring, makes some Fed action more likely by year’s end.
Fed Chairman Ben Bernanke will testify to Congress about the economy on Tuesday and Wednesday.
In Monday’s report, Commerce 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. And he lowered his forecast for the July-September quarter to a 1.5 percent growth rate, down from a 2 percent rate.
Chris G. Christopher Jr., senior economist at IHS Global Insight, thinks the economy grew at an annual rate of just 1.3 percent last quarter. He doesn’t see much of a pickup in the second half of 2012.
Christopher said the biggest problem is meager job growth. Americans have also been rattled by gyrating stock prices stemming from Europe’s debt crisis. “Consumers are getting hit from all sides,” Christopher said, despite the benefit of sharply lower gasoline prices since early April.
The overall decline in retail sales reflects, in part, falling gas prices. But even excluding sales at gas stations, retail spending fell 0.3 percent from May to June.
As hiring has slumped, workers’ pay has barely kept up with inflation. Consumers have responded by pulling back on their spending, which drives about 70 percent of economic activity.
“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.