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May retail sales weak
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June 13, 2001: 10:46 a.m. ET
Month's gain lower than expected amid slowing economy; April revised up
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NEW YORK (CNNfn) - Retail sales grew at a slower-than-expected pace in May, reflecting generally weak store sales. But a much higher-than-expected revision to April sales sparked hope among analysts and investors that consumer spending will pick up by the end of the second quarter.
Retail sales are an important indicator of consumer spending, which fuels two-thirds of the U.S. economy. Though consumers still are spending at the stores, they have pared back from a year ago, streamlining their shopping and bargain hunting at discount chains.
Retail sales increased just 0.1 percent in May to $291.3 billion, the Commerce Department reported Wednesday, lower than the forecast of analysts for a 0.3 percent rise, according to Briefing.com. Excluding the volatile auto sector, sales increased 0.3 percent.
However, April's sales gain jumped to a revised 1.4 percent from 1.1 percent. Wall Street economists polled by Briefing.com had forecast a rise of 0.3 percent for the month.
"The retail sales, when taken in combination, April and May together, are somewhat stronger than expected," Richard Gilhooly, fixed income market strategist at BNP Paribas, told Reuters Wednesday. "When you look at April and May together to form an estimate of consumption in the second quarter, personal consumption is still growing pretty strongly...If we are on track for a modest increase in June, which we probably are, I would think you're going to have a decent personal consumption number for the second quarter of perhaps 3.0 percent."
A spike in gasoline prices, though it contributed to higher overall monthly retail sales, has put a crimp in consumers' pocketbooks as they continued to worry about layoffs in the slowing economy.
The Federal Reserve, which already has lowered interest rates five times this year, will consider the retail sales figures along with key inflation reports due out Thursday and Friday. Analysts expect the producer price index, a measure of wholesale prices, to be a flat 0.3 percent compared with the previous month, according to Briefing.com.
On Friday, the consumer price index, the price consumers pay for goods and services, is expected to increase slightly to 0.4 percent from the 0.3 percent gain the previous month.
Though inflation is expected to rise ever so slightly, analysts do not expect it to prevent the Fed from lowering interest rates another quarter point when it meets June 26 and 27.
"I think (Fed Chairman) Alan Greenspan has made it all but official, we'll get another rate cut in June, but my guess is a quarter point rate cut, principally because of what we're seeing on the inflation report," Wayne Ayers, chief economist with FleetBoston Financial Corp., said. "The CPI and PPI have been trending up over the last two years."
Consumers hanging tough
Despite the burst in the dot.com bubble that sparked the latest economic decline, consumers have not hermetically sealed their wallets. While personal savings have dipped lower and individual portfolios have taken a hit, consumers have retained enough buying power to keep the economy out of a recession, Ayers said.
"I think the general message here is that despite the fears about a low savings rate, the consumer continues to hang in there, and that's essentially the only thing that's going to keep the economy on track," Ayers added.
But not everyone agrees with that view. Calvin Schnure, an economist with JP Morgan, told CNNfn's Before Hours Wednesday that the May sales numbers reflect overall weakness in consumer spending. (WAV 323KB) (AIFF 323KB)
Though a significant number of investors lost millions on technology and telecommunications stocks in the last year, Ayers said that represents just one market sector and that personal portfolios reflect strength in other areas, which helped bolster consumer spending.
Another factor that has kept consumers spending is the housing market, which remains robust despite declines in other sectors of the economy. Though housing starts declined sharply in May, overall, the numbers remain healthy, analysts have said.
Additionally, analysts expect the Fed's previous rate cuts to begin taking effect sometime in the second half, just as Americans are beginning to find tax rebate checks in the mail, a result of President Bush's newly enacted tax cuts.
Health and personal care sales jumped 8.5 percent in May from a year earlier while building material and garden equipment sales increased 7.4 percent. Gasoline station sales increased 6.8 percent.
Beginning with May's report, the government is changing the method it uses to tally monthly retail sales figures and will revise the numbers back to 1992.
Separately, the government reported a 0.3 percent increase in import prices and a 0.3 percent decline in export prices. 
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