Saturday, June 12, 2010

Sales dip raises doubts on US recovery

Sales dip raises doubts on US recovery
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: June 11 2010 14:08 | Last updated: June 11 2010 16:50

US retail sales recorded a surprise drop in May, breaking a seven-month stretch of solid increases and signalling that the US consumer remains stubbornly fragile.

Sales fell by 1.2 per cent last month, commerce department figures showed on Friday. That failed to meet economists’ expectations that they would continue climbing, as purchases were pulled back by a drop in demand for building materials and customers held off on buying new summer clothes.

Retail sales have been climbing steadily in the last year, increasing by 6.9 per cent from May 2009, as consumers reaped the benefits of surging equity markets and recovering home prices. Friday’s figures tarnished some of that, and the sharpest monthly decline since last September provoked some analysts to downgrade their economic outlooks.

“This data then certainly fits with a sub-par recovery with tentative evidence of some lost momentum into the spring,” said Alan Ruskin, strategist at RBS Securities, noting that weaker consumption could dent gross domestic product projections for the coming quarter.

The disappointing data rattled US markets, with investors already feeling anxious after last week’s tepid non-farm payrolls report showed that the US economy added just 41,000 private sector jobs last month.

Ian Shepherdson, chief US economist at High Frequency Economics, said that some of the recent strength in sales was due to consumers spending their tax rebates and from demand spurred by rebates for energy-efficient appliances.

“With these effects all now gone, the weaker underlying picture is revealed,” Mr Shepherdson said.

Building materials sales crumbled in May, falling by 9.3 per cent after strong rises during the prior two months that were fuelled by homeowners fixing up their houses in the wake of a harsh winter. Car sales, petrol purchases and buying at general merchandise and department stores were also thin last month.

But in spite of the monthly decline, there were some shades of optimism in Friday’s figures.

Electronics shops reported greater demand, and sales were up at sporting goods retailers and grocery stores. April’s results were also stronger than previously thought, with sales revised to show a rise of 0.6 per cent.

Some economists downplayed the May decline as the result of bad weather and a effect of a late Memorial Day holiday on shoppers.

Analysts pointed to optimism in a separate Reuters/University of Michigan survey, showing that consumer sentiment in June rose to its highest level in more than two years.

Businesses also continued to demonstrate confidence, according to the commerce department, boosting their April inventories to a 10-month high in anticipation that sales will stay strong.

“Looking forward, the growth in household labour income and the ongoing improvement in consumer sentiment should lend support to continued growth in real consumer spending,” said Michael Feroli, an economist at JPMorgan Chase.

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