Retail sales down, economy still struggling to gain momentum

The consumer pause in May came after seven months of gains in retail sales. There's some concern about a 'double dip' recession, but most forecasters see the economy recovering at a slow pace.

By , Staff writer

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    People walk by a sale sign at the entrance of the Levi's store on Union Square in San Francisco. Retail sales dropped in May as consumers slashed spending on everything from cars to clothing. This raises new worries about the durability of the economic recovery.
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Consumers paid fewer visits to stores like Home Depot in May, pushing retail sales down in a sign that the economy is still struggling to gain momentum.

Retail sales fell 1.2 percent, from the level a month earlier, the Commerce Department reported Friday. The news came even as another monthly report, the Reuters/University of Michigan consumer sentiment index, rose to its highest level since January 2008.

The consumer pause in May came after seven months of gains for retail sales. May was also a slower month for private-sector hiring, raising new concerns about the possibility of a "double dip" back into recession later this year.

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Most forecasters see the recovery continuing, but the pace may be slow.

"The second half [of 2010] is probably a bit weak," says Gus Faucher of Moody's Economy.com in West Chester, Pa. "You have a bunch of drags on the economy," including the end of many temporary Census jobs and of some federal stimulus programs.

The retail figures showed the sharpest drop in the categories of building materials and garden stores (down 9.3 percent from April) and gas stations (down 3.3 percent). Sales of automobiles also fell slightly. Leaving those categories aside, retailers eked out out a small gain of 0.1 percent for the month.

That, coupled with the rise in consumer confidence, shows at least some momentum for the economy.

"Consumers do not appear to be too fazed by the recent volatility and decline in stock prices, European debt issues, and Gulf oil spill," Chris Christopher, an economist at IHS Global Insight, wrote in a Friday analysis. "The decline in retail sales in May (the first since September) is probably due to the ending of various state programs of rebates on energy-efficient appliances and not to a weakening of consumer confidence."

Still, the speed of the recovery remains modest.

Federal Reserve Chairman Ben Bernanke said this week that the economy is making an "important transition" from stimulus-supported growth to growth led by the private sector. But an index of so-called leading indicators of the economy, tracked by the Conference Board, has been essentially flat since March. The business group's index of current economic activity has been rising, but not at a roaring pace.

Friday's news didn't cause a sharp reaction on Wall Street, with the Dow Jones Industrial Average down just slightly (at 10146) in the middle of the day, after recent dips below 10000.

Related:

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Bernanke sees 'subdued' inflation but persistent unemployment

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