Glimmers of hope fading? Retail sales drop for second straight month

Paul Sakuma/AP
A furniture store posts store closing signs in San Jose, Calif. Retail sales dropped for the second straight month after some gains earlier in the year, leading many to worry that consumer spending, a huge part of the economy, might not bounce back anytime soon.

For all of President Obama’s talk about “glimmers of hope” for an economic recovery, at least one crucial segment of the economy isn’t keeping up its end of the bargain: consumers and their wallets.

In a turn of events that surprised many economists, retail sales actually dropped in April, off 0.4 percent from March. That’s off 10.1 percent from April of last year. (You can see the figures, released Wednesday from the Department of Commerce, here.)

While 0.4 percent may not sound like a lot, the fact that consumer spending isn’t going up, up, up as stimulus funds begin to wind their way through the economy is a worrying sign. More worrying still is that this drop follows March’s drop, which came after consumer spending increases in January and February.

That means that the tentative bubble of hope that started the year off has been just as quickly deflated. And these figures are important because consumer spending makes up about 70 percent of the US economy. So, getting people to open their wallets again is seen by many as pivotal to America regaining its financial footing.

The big reason for the contraction in spending isn’t all that surprising. It’s job losses and fear of job losses: Consumers find it hard to justify purchases when uncertainty over their employment future reigns. And since employment trends typically lag behind the economy as a whole, and job losses are still mounting, it seems unlikely that a major turnaround in consumer spending will come anytime soon.

“Despite the positive benefits to disposable income from the fiscal stimulus tax reductions and transfers that kicked in during April, consumers are not being induced to go out to the malls and the auto dealers,” Brian Bethune, chief US financial economist for IHS Global Insight, writes in a research note.

He adds: “This is not a pretty report no matter how you look at it.”

Such weak figures might also prompt more calls for the Obama administration to get stimulus funds moving out the door faster than they have been. The New York Times reports that only 6 percent of the stimulus money has actually entered the economy – too little so far to dispel fears that the glimmers are fading.

- Monitor correspondent Jeremy Kutner contributed this post.

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