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News > Economy
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Retail sales drop
Cold weather curbs consumer spending; PPI falls, showing inflation weak; jobless claims edge up.
June 13, 2002: 12:36 PM EDT

NEW YORK (CNN/Money) - Retail sales fell in the United States in May, the government said Thursday, as cold weather curbed consumer spending, the force that drives the world's largest economy.

The Commerce Department said retail sales fell 0.9 percent last month to $297 billion, the biggest drop since November 2001, after a 1.2 percent increase in April. Excluding volatile automobile sales, retail sales still fell 0.4 percent, compared with a gain of 1.0 percent in April. Economists surveyed by Briefing.com expected sales to fall 0.2 percent and "core" sales to rise 0.3 percent.

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"This to me looks more like what retailers had said, that colder weather in May might have depressed sales in ways that are not really fundamental," said Robert DiClemente, chief U.S. economist at Salomon Smith Barney. "Early anecdotal evidence for June shows a snap-back. It would be a big mistake to view this as a sign of a new wave of retrenchment."

Separately, the Producer Price Index -- a measure of prices paid to factories, farmers and other producers -- fell 0.4 percent after falling 0.2 percent in April, the Labor Department reported. Economists surveyed by Briefing.com expected prices to rise 0.1 percent.

Excluding often-volatile food and energy prices, the "core" PPI was unchanged after rising 0.1 percent in April. Economists surveyed by Briefing.com expected core PPI to rise 0.1 percent.

Separately, the Labor Department said the number of Americans filing new claims for unemployment benefits rose to 390,000 in the week ended June 8 from a revised 384,000 the prior week. It was the second straight week that new claims were below 400,000, a level that points to a sluggish job market. Economists surveyed by Briefing.com expected 393,000 new claims.

On Wall Street, stock prices were mixed after the reports, while Treasury bond prices rose.

In the Commerce Department report, sales of electronics and appliances rose 2.1 percent, adding to April's 10.9 percent gain. Sales at furniture stores rose 0.9 percent after rising 5.6 percent in April.

Sales at gas stations fell 3.1 percent after a 10.3 percent drop in April, reflecting lower prices at the pump. Sales of autos and auto parts dropped 2.5 percent after falling 1.4 percent in April.

Consumer spending is critical to the economy's health, making up about two-thirds of total gross domestic product (GDP), the broadest measure of economic strength.

Amazingly resilient consumer spending, buoyed by 11 interest-rate cuts by the Federal Reserve in 2001, helped make the latest recession, which began in March 2001, one of the shortest and mildest on record.

But Fed Chairman Alan Greenspan and other economists have said many times that consumers can't carry the load forever and that businesses will have to pick up their spending in order for the economy to recover with any strength.

When businesses start buying goods from each other again, then they'll pick up their production and their hiring. Until then, new jobs will be scarce, and the unemployment rate will stay bloated.

Unemployment fell slightly to 5.8 percent in May, but it has hovered just above that level for several months.

In Thursday's report, the Labor Department said continued claims, the number of people who have been drawing unemployment benefits for more than a week, fell to 3.77 million in the week ended June 1, the latest data available, from 3.79 million the prior week.

The four-week moving average of jobless claims, which smoothes out fluctuations in the weekly data, fell to 402,500 in the week ended June 8 from 411,250 the prior week.

Weekly jobless claims jumped in March and stayed above 400,000 for several weeks after Congress passed an extension of unemployment benefits. Thousands of workers whose benefits had expired re-applied for the extension, and the Labor Department was unable to separate them from first-time filers. Many economists think the impact of that surge of additional filers is only now coming out of the data.

"Now we're starting to see that wash out, and we're seeing that the labor market really has been gradually strengthening for most of the first half of this year," Bill Cheney, chief economist at John Hancock Financial Services, told CNNfn's CNNmoney Morning program. "And this is fundamentally good news for consumers and for the health of the recovery going forward."

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Some economists and business leaders have fretted that continuing low prices are a sign of deflation, a lack of pricing power that will hurt companies' ability to make a profit, further depressing the labor market. Others point out that low prices force companies to operate more efficiently and give consumers more spending power.

"In the aggregate, if everybody has pricing power, then we have a serious problem," said DiClemente of Salomon Smith Barney.

Lower prices, combined with continuing sluggishness in various sectors of the economy, should also help keep the Fed from raising rates any time soon. Policy makers meet for two days at the end of June, but they are expected to leave their key short-term interest rate target at a 40-year low, as they have all year.  Top of page






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