May retail sales drop 1.2%, most in 8 months

Posted June 11, 2010 at 7:30 a.m.

Associated Press | Sales at U.S. retailers unexpectedly fell in May for the first time
since September following a record slump in purchases of building
materials, adding to fears the economic recovery was losing some steam.

The Commerce Department said total retail sales dropped 1.2 percent,
the largest decline since September, after rising by an upwardly
revised 0.6 percent in April. Sales in April were previously reported
to have increased 0.4 percent.

Analysts polled by Reuters had forecast retail sales rising 0.2 percent last month.

Retail sales, which had risen for seven straight months, were up 6.9 percent compared to May last year.

U.S. stock index futures fell on the report, while Treasury debt prices rose. The U.S. dollar fell broadly.

“There’s no getting around the fact you saw some consumer retrenchment in the month of May. The number is going to call into question the strength of consumer spending for the second quarter,” said Kevin Flanagan, chief fixed income strategist at Morgan Stanley Smith Barney in Purchase, New York.

The decline in sales follows a report last week showing private businesses unexpectedly held back on hiring in May after expanding payrolls for two months, a trend which could undermine recovery from the worst recession since the 1930s.

Restoring the economy to health is a key priority for President Barack Obama and voter anguish over the slow pace of the recovery could inflict heavy losses on the Democratic Party in November’s Congressional elections.

Sales last month were dragged downed by a record 9.3 percent drop in receipts from building materials and garden equipment suppliers, which could reflect a drop in construction following the end of a popular homebuyer tax credit.

Motor vehicle and parts receipts also fell 1.7 percent, although dealers reported a rise in sales.

Excluding autos, sales fell 1.1 percent in May, the largest decline in 14 months, after rising 0.6 percent in April. Markets had expected sales excluding autos to gain 0.1 percent.

However, core retail sales — which exclude autos, gasoline and building materials — rose 0.1 percent after falling 0.2 percent in April. Core sales correspond most closely with the consumer spending component of the government’s gross domestic product report.

Clothing and clothing accessories sales dropped 1.3 percent, while gasoline receipts fell 3.3 percent, the largest decline since March 2009.

There were a few bright spots in the report, with sales at sporting goods, hobby and book stores rising 0.4 percent in May after falling 1.3 percent in April.

Receipts at electronics and appliance stores increased 0.6 percent, reversing the prior month’s fall.


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