Retail sales fell 0.1 percent in May, the third decline in the past four months and another indication of continued economic sluggishness, the Commerce Department reported yesterday.
In a separate report, Commerce said that businesses plan to spend 1.3 percent less this year on new plant and equipment than they did in 1985. Businesses had increased their investment by 7.6 percent last year and by 15.1 percent in 1984.
One reason for the flat retail performance is the unusual drop in prices from February through April, which tended to deflate the value of purchases, said Robert Ortner, Commerce Department chief economist. If retail sales figures were adjusted for inflation, they would show an increase in spending of about 3 percent, Ortner said.
"The report is basically sluggish, but it's better than it appears on the surface," Ortner said.
Consumer spending is important because it accounts for about two-thirds of the gross national product, the nation's output of goods and services.
Another large chunk of GNP is linked to business spending, which has been worse than consumer spending this year. The expected decline this year would be the first since a 1.2 percent drop in 1983, Commerce said.
"The investment report is somewhat disappointing, especially as it has been revised downward since the last survey," Ortner said. "The downward revision is concentrated in the oil industry. Without the oil industry, the projection for this year would show about a 3 percent increase rather than roughly flat."
However, Ortner said that the problems of the oil industry should not be factored out. "The oil industry is part of the economy, and the significance of all of this is that the first impact of the decline of oil prices is adverse." Businesses are cutting back on purchases before the beneficial effects of inflation begin, Ortner said.
Economists had been predicting that, by this time of the year, the favorable effects of the oil-price decline would begin to overtake the negatives, such as reduced employment and investment in the oil states of Texas, Louisiana and Oklahoma.
However, recent economic indicators have not pointed to a rebound yet. The civilian unemployment rate in May rose from 7.1 percent to 7.3 percent because of continuing declines in employment in manufacturing and the oil and gas extraction industries.
"Within a few months, we should start to see some" of the benefits of lower oil prices, Ortner said, particularly in the consumer sector.
Ortner also said that uncertainty about the legislation to revise the tax system and sluggishness in the economy also could be hurting business investment.
In the retail sales report, Commerce said that, excluding perkier auto sales, the overall decline would have been 0.3 percent, following a 0.7 percent decline in this group the previous month. Auto sales increased 0.6 percent in May after climbing 4.3 percent in April.
Sales of durables -- products expected to last three or more years -- rose 0.2 percent, but nondurable sales fell 0.3 percent. Strong sales of new and existing housing helped furniture-store sales rise 2.8 percent in May, Commerce said. General merchandise stores had a 0.7 percent sales decline, however.