Friday, June 11, 2010

Retail sales plunge by largest amount in 8 months

Is this news as bad as it sounds?

Retail sales drop 1.2 percent in May
Retail sales plunged in May by the largest amount in eight months as consumers slashed spending on everything from cars to clothing. The big drop raises new worries about the durability of the economic recovery.

The Commerce Department says that spending fell 1.2 percent last month. Auto sales were down 1.7 percent but there was weakness in a number of areas. Excluding autos, sales fell 1.1 percent.

The big decline cast new doubts about the strength of the economic recovery. Consumer spending accounts for 70 percent of total economic activity. Economists are concerned that households will start trimming outlays as they continued to be battered by high unemployment and a swoon in stock prices.

Investors have sold off stocks for more than a month because of concerns that Europe's sovereign debt crisis will slow a worldwide economic rebound. The Dow Jones industrial average fell 7.9 percent last month, the worst May for the blue chip index since 1940.

The 1.2 percent decline in May sales was the largest decline since sales had fallen 2.2 percent in September. Analysts had been forecasting sales would be weak but remain in positive territory.

For May, the 1.7 percent drop in auto sales followed a 0.6 percent increase in April sales and was the poorest showing in this category since a 2.5 percent February decline.

Sales at hardware stores plunged 9.3 percent. That could reflect an impact from the end of the homebuyer tax credit, which had spurred home sales earlier in the spring.

Department store sales fell 1.8 percent while sales in the broader category of general merchandise stores, which includes big retailers such as Wal-Mart, fell 1.1 percent.

Gasoline stations sales were down 3.3 percent, a drop that reflected in part lower gasoline pump prices during the month.

The Federal Reserve reported Thursday that households' net worth rose for the fourth consecutive quarter, but since then stock prices have been tumbling. Economists say it may not be until 2012 or 2013 at best before Americans' wealth returns to its pre-recession levels.

Rocky road for investors continue.
Cheers!

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