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US economy appears weaker as retail sales slump

By Martin Crutsinger

Associated Press

Published: Monday, July 16 2012 2:51 p.m. MDT

"Earlier in the year, people were feeling more optimistic," Tipograph said. "There was a convergence of a lot of good things. But now, people are feeling nervous."

Some of the sting of Monday's retail sales report was eased by a separate Commerce report that U.S. companies added to their stockpiles in May. When businesses step up restocking, they tend to order more goods, leading to more factory production and economic growth.

Some hope also emerged from continued gains in "nonstore"sales — a category that consists mainly of online purchases. E-commerce sales have strengthened in the past year and now account for 9 percent of retail purchases.

"You're definitely seeing a major shift in spending," said New York-based retail consultant Walter Loeb.

Benefiting from the shift are online merchants like Wayfair.com. The company, which sells products ranging from baby strollers to decorative pillows, reported sales topping $500 million last year.

"Shoppers are not spending with abandon," said Steve Conine, chairman of Boston-based privately held Wayfair.com. "But the shopping patterns are in our favor."

The overall decline in retail sales reflects, in part, falling gas prices. But even excluding sales at gas stations, retail spending fell 0.3 percent from May to June.

As hiring has slumped, workers' pay has barely kept up with inflation. Consumers have responded by pulling back on their spending, which drives about 70 percent of economic activity.

"Weak jobs data have certainly done nothing to alter our view that consumer spending growth will be very modest at best in the quarters ahead," said Joshua Shapiro, chief U.S. economist at MFR Inc.

The IMF lowered its outlook for global growth over the next two years in part because of Europe's financial crisis and slower expansion in China and India.

The international lending organization predicts global growth of 3.5 percent this year, down from its forecast in April of 3.6 percent. It cut its forecast for 2013 to 3.9 percent growth from 4.1 percent.

The IMF also cut its forecast for U.S. growth to 2 percent this year and 2.3 percent next year, both slightly below its previous estimates.

The retail spending report showed that sales at auto dealers — one of the economy's strongest areas this year — fell 0.6 percent from May to June. That's a gloomier sign than earlier reports from U.S. automakers had suggested.

The automakers have reported that sales rose 22 percent in June from the same month in 2011. But the automakers don't adjust their sales data for seasonal changes. And their figures reflect changes from the same month in the previous year, not from month to month.

The weakness in June retail sales extended well beyond autos. The Commerce report showed sales fell 0.7 percent at department stores and 1.6 percent at building supply stores. Sales at furniture stores and electronics and appliance stores both fell 0.8 percent.

Sales at gas stations dropped 1.8 percent after a 2 percent drop in May. The declines reflected cheaper gas, which has dropped more than 50 cents since early April.

The economy is expanding too slowly to lower the unemployment rate. Employers have created an average of just 75,000 jobs a month in the April-June quarter — only about a third of the monthly job growth during the previous three months.

D'Innocenzio contributed from New York. AP Economics Writer Christopher S. Rugaber contributed to this report.

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