Retail sales post small gain as economy appears to slow
Report fuels worries over rising inflation, rate hike prospects
WASHINGTON -- Consumers, battered by gasoline prices and rising interest rates, cut back sharply on spending in May, providing further evidence suggesting the economy is slowing.
Whether the slowdown is coming soon enough to keep inflation under control is the question.
The Labor Department reported yesterday that wholesale prices rose just 0.2 percent in May, a big drop from the past two months. But core inflation, excluding food and energy, showed an increase of 0.3 percent, faster than analysts had expected.
The Commerce Department reported retail sales rose only 0.1 percent last month and would have been in negative territory had it not been for a big rise in the price of gasoline.
Fears that higher inflation will trigger further interest rate increases from the Federal Reserve and contribute to a sharper US economic slowdown have also contributed to a global stock sell-off in recent days.
Without the higher gasoline costs, retail sales would have fallen 0.1 percent last month. The declines were widespread with sales falling at auto dealerships, furniture stores, and hardware stores. Sales at department stores and specialty clothing stores posted modest increases.
Analysts said consumers, who have been the driving force in the four-year-old economic expansion, are beginning to flag in their shopping zeal under an array of adverse forces.
Consumer spending, which accounts for two-thirds of total economic activity, helped power the economy to growth of 5.3 percent in the first three months of the year. Analysts believe that economic growth will slow to around 3 percent in the current quarter, reflecting a weaker consumer sector.
The tiny 0.1 percent rise in May retail sales was held back by a 1.6 percent drop in auto sales.
The 0.2 percent increase in wholesale inflation was the best performance since a 1.3 percent drop in February. Food prices actually fell by 0.5 percent and energy costs, which had jumped 4 percent in April, slowed to a 0.4 percent rise in May.