US consumers hold back, even as gas prices fall

May 16, 2012

Lower gas prices in April weren’t enough to embolden U.S. consumers to spend much more elsewhere.

The Commerce Department said retail sales rose only 0.1 percent last month. After excluding gasoline station sales, consumers increased their spending on retail goods by just 0.2 percent.

That followed two stronger months, February and March. Some economists say a mild winter and early Easter led consumers to make purchases earlier in the year, effectively stealing sales from April.

Still, there were positive signs suggesting that tepid spending in April might prove to be a temporary lull.

Americans spent more on autos, furniture and electronics — big purchases that help drive growth. They also spent more at restaurants and bars, which is generally a sign of confidence in the economy.


Retail sales are up only slightly. (The Washington Post/Source: Census Bureau)

Excluding autos, gas station sales and spending on building materials, core retail sales increased 0.4 percent.

One reason for the weakness was that gasoline prices have fallen sharply in the past month. The national average dropped to roughly $3.73 per gallon Tuesday, roughly 17 cents cheaper than a month ago, according to a survey by AAA. That pulled sales at service stations down 0.3 percent.

But consumers cut spending sharply at department stores and clothing stores. And sales dropped 1.8 percent at hardware stores.

The retail sales report represents the government’s first look at consumer spending for the April-June quarter. Consumer spending is closely watched since it accounts for 70 percent of economic activity.

Dan Greenhaus, an analyst at BTIG in New York, said the weaker April figure likely reflects a temporary slowdown in further solid gains. He expects cheaper gas prices to lift consumer confidence.

The University of Michigan said its consumer sentiment index for May rose to its highest level since January 2008.

Greenhaus predicted that consumer spending in the April-June quarter likely would grow at an annual rate of roughly 2.6 percent. That would be down only slightly from the 2.9 percent spending growth in the first quarter, the best since late 2010.

In the January-March quarter, overall economic growth slowed to an annual pace of 2.2 percent. That’s down from the 3 percent increase in the October-December period, but faster than last year’s 1.7 percent pace.

Economists are concerned that income growth continues to lag behind inflation. That could weaken further if job gains don’t pick up in coming months. Workers’ average hourly earnings have risen just 1.3 percent during the 12 months that ended in April. That’s roughly half the pace of inflation over the same 12 months.

And job growth has slowed from the start of the year. Employers added an average of 252,000 jobs per month from December through February. The average fell to just 135,000 jobs per month in March and April.

Many economists expect job growth will pick up during the next few months.

But few see it being as strong as earlier this year. That should keep consumer spending up and help the economy grow at a moderate pace.

— Associated Press

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