U.S. Retail Sales Plunge for First Time in Eight Months

Most economists had expected a 0.2% rise in retail sales in May.

U.S. retail sales slumped for the first time in eight months in May, the government said Friday, casting doubts on consumer spending, a linchpin of economic growth.

Sales unexpectedly dipped 1.2% to $362.5 billion from April, according to data from the Commerce Department.

"Todays report is both surprising and disappointing," said Thomas Julien, U.S. economist for Natixis, pointing out that the data came just two days after the central bank had suggested sales would grow for the eighth month in a row in May.

Federal Reserve chief Ben Bernanke also had told lawmakers on Wednesday that consumer spending was likely to increase and would be a key cog in strengthening the U.S. recovery from the worst recession in decades.

The monthly retail sales report is a primary indicator of consumer spending, which accounts for two-thirds of U.S. output.

Most economists had expected a 0.2% rise in retail sales in May following a revised 0.6% gain the previous month.

Excluding autos, retail and food services sales fell 1.1% from the previous month, the Commerce Department said.

Sales in May dipped at building supply stores, reversing more than half of the surge in the previous two months, while many other segments posted big falls, including general merchandise stores, auto dealers, gasoline stations and apparel stores.

Non-store retailers and furniture stores were seen as bright spots.

Despite the weak monthly data, sales were up nearly 7% from their recessionary level of May 2009.

Growth was led by gasoline stations, non-store retailers, and auto dealers, with only department stores among major segments posting sales below their year-ago level.

Economists say consumer spending will be vital to a sustainable recovery as the government starts to wind down extraordinary stimulus measures.

"Retail sales are likely to remain weak for quite a while given the current trends in employment, and the negative wealth impact for depressed prices for homes and stocks," analysts at Briefing.com said in a note to clients.

While the May data sprang a surprise, "it confirms the forecast for modest spending growth going forward more than threatens it," said Scott Hoyt, senior director of consumer economics for Moody's Economy.com.

He said sales grew "unsustainably fast" in the first quarter and that some of that was being reversed as spending settled into "a pace justified by modest job and income growth, low but growing wealth, deleveraging but reduced debt payments, and low confidence."

U.S. unemployment is near 10% and last week the Labor Department reported weaker-than-expected job creation in May, also heightening fears of a faltering economic recovery.

The U.S. economy is on track to grow 3.5% this year as it sees only a "modest" impact from the mounting eurozone debt crisis, Bernanke said this week.

Gross domestic product in the first quarter of 2010 rose 3%, according to the latest official data.

Copyright Agence France-Presse, 2010

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