Cool weather hurts sales
WASHINGTON (AP) – Unusually cool weather chilled shoppers’ appetites to go out and spend in May, driving down retailers’ sales by the largest amount in six months. The pullback came even as wholesale prices fell for a second straight month. With shoppers exhibiting less vigor and inflation under control, Federal Reserve Chairman Alan Greenspan and his colleagues are likely to keep short-term interest rates at 40-year lows to help along the economic recovery, analysts said.
“Policy-makers at the Fed can take the summer off,” said Ken Mayland, president of ClearView Economics.
In latest batch of economic data released Thursday, retail sales fell 0.9 percent in May, after a strong 1.2 percent advance the month before, the Commerce Department reported. Consumers trimmed spending on cars, clothes, and building and garden supplies. Lower gasoline prices also contributed to the decline.
“Consumers definitely took a breather,” said Stuart Hoffman, chief economist at PNC Financial Services Group.
Cool weather discouraged them from hitting the malls, particularly department stores, and from buying seasonal merchandise, economists said.
A report from the Labor Department suggests that inflation remains tame, providing Fed policy-makers with leeway to hold interest rates steady.
Wholesale prices fell 0.4 percent in May, after dropping 0.2 percent in April. Last month’s decline, the biggest since December, was led by lower costs for gasoline and other energy products.
Excluding volatile energy and food prices, the “core” rate of inflation at the wholesale level, was flat in May, after edging up 0.1 percent the month before.
Falling prices can offer some good deals for consumers. But for companies whose product prices are going down, it means more pressure on already pressed profit margins.
“The major message in the wholesale price report is that there is a general lack of pricing power for companies and this is a favorable environment for consumers,” said Lynn Reaser, chief economist at Banc of America Capital Management.
Greenspan and his colleagues have expressed concerns about the vitality of the recovery in the months ahead.
Among their concerns: how consumers, whose spending accounts for two-thirds of all economic activity, will hold up; and when businesses will invest in new plants and equipment on a sustained basis, a key ingredient to a full recovery.
Even with the weaker than expected retail sales report, economists believed consumers would spend modestly.
Keeping interest rates low might motivate shoppers and encourage businesses to step up investment, which would bolster economic growth.
Economists said Thursday’s reports reinforced their view that the Fed will leave interest rates unchanged at its June 25-26 meeting and into the summer.
A third report suggested that the jobs market remains sluggish. New claims for unemployment insurance rose last week by 6,000 to 390,000. The number of laid-off workers continuing to draw unemployment benefits dipped to 3.77 million, for the week ending June 1. Even with the decline, continuing claims were still at a high level suggesting that not a lot of hiring is going on, economists said.
In the retail report, the 0.9 percent drop marked the biggest decrease since November.
Sales at automobile dealerships fell 2.5 percent in May, as some incentives to lure buyers were discontinued, analysts said. Gasoline stations sales dropped 3.1 percent, reflecting lower prices at the pump. At clothing stores, sales fell 2.8 percent. Building and garden supply stores saw sales fall 0.4 percent. Sales at general merchandise stores, including department stores, went down 0.9 percent.
Excluding sales of automobiles and gasoline, retailers saw a 0.1 percent sales decline last month.
The decline in wholesale prices in May largely stemmed from a 2.3 percent drop in energy costs, which had risen sharply the month before. World oil prices recently cooled off as global output increased, fears of supply disruptions receded and demand was sluggish.
Gasoline prices went down 9.6 percent in May, the biggest decline in six months. Heating oil prices fell 4 percent, residential natural gas prices declined 0.5 percent and residential electric power prices edged down 0.1 percent.
Food prices edged down 0.2 percent, after falling by a sharper 3.2 percent in April.
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On the Net:
Retail sales report: http://www.doc.gov/
Wholesale prices report: http://www.bls.gov/