Bloomberg News

Retail Sales Probably Decreased in May: U.S. Economy Preview

June 12, 2011

June 12 (Bloomberg) -- Sales at retailers probably fell in May as Americans bought fewer cars and elevated gasoline costs restrained consumers, reports may show this week.

The 0.5 percent drop in purchases, the first decline in 11 months, would follow a 0.5 percent gain in April, according to the median forecast of 62 economists surveyed by Bloomberg News ahead of Commerce Department data June 14. Other reports may show inflation eased and manufacturing expanded.

Chains including Limited Brands Inc. missed analysts’ estimates for May as gasoline prices climbed to the highest level in almost three years and unemployment topped 9 percent. A decline in fuel costs at the end of the month and a factory rebound from the temporary effects of the disaster in Japan signal economic growth may pick up in the last six months of 2011.

“The second half should certainly look better,” said Jim O’Sullivan, chief economist at MF Global Inc. in New York. “The drag from gasoline prices will start to fade,” he said. “Much of the weakening in May retail sales is the plunge in autos, and there are reasons not to extrapolate from the numbers.”

The retail report may also show sales excluding automobiles climbed 0.3 percent last month after rising 0.6 percent in April, economists surveyed said.

Cars and light trucks sold at an 11.8 million annual rate in May, the slowest in eight months and down from a 13.1 million pace for April, according to researcher Autodata Corp. Detroit- based General Motors Co.’s U.S. deliveries fell 1.2 percent from the same month last year, while Ford Motor Co. had a 2.6 percent decline as smaller discounts also deterred buyers.

Automaker’s Concern

“Our biggest concern of course is that the economy has slowed a little bit from where we thought it would be,” Ford Chief Executive Officer Alan Mulally said in a June 7 Bloomberg Television interview. “Having said that, most of the economists believe that it’s going to start picking up in the second half with everything that’s been put in place, both monetarily and fiscally.”

Some of the drop in auto sales last month reflected a shortage of Japanese-made vehicles after the earthquake and tsunami disrupted supplies.

The retail sales figures, which aren’t adjusted for inflation, probably reflected higher service-station receipts. Regular fuel averaged $3.90 a gallon in May, up 10 cents from April. The price reached $3.99 on May 4, the highest since July 2008, according to AAA, the nation’s biggest auto group. The cost was down to $3.72 as of June 9.

Job Market

Payrolls grew by 54,000 in May, the smallest gain in eight months, and the jobless rate climbed to 9.1 percent, Labor Department figures showed on June 3. Employment at retailers fell for the second time in three months.

Less hiring was one reason at least 15 companies fell short of estimates for same-store sales. Limited, the Columbus, Ohio- based operator of Victoria’s Secret, reported a 6 percent gain in May sales at stores open at least a year compared with the same month in 2010, missing the 7.4 percent average of analysts’ projections compiled by Retail Metrics. A 4 percent decline at San Francisco-based Gap Inc., the largest U.S. apparel chain, was about five times worse than the average prediction.

The Standard & Poor’s Supercomposite Retailing Index has fallen 8.1 percent since the end of April, exceeding the 6.8 percent drop in the broader S&P 500.

Second Half Pickup

Consumer spending, which accounts for about 70 percent of the economy, will grow an average 2.95 percent in the second half of 2011 after rising 2.1 percent this quarter, according to the median forecast of economists polled by Bloomberg News from June 1 to June 8. Economic growth will accelerate to a 3.2 percent rate from July through December from 2.3 percent this quarter, the survey showed.

Manufacturing, which accounts for about 12 percent of the economy, may already be turning around. Fed figures on June 15 may show industrial production grew 0.2 percent in May after stalling in April, according to the Bloomberg survey median. Regional Fed reports from the New York and Philadelphia area may also show factories expanded at a faster rate in June.

Inflation is easing as oil prices recede. Labor Department figures due June 16 may show the cost of living index rose 0.1 percent in May after a 0.4 percent gain in April, according to the Bloomberg survey median. Core prices, which exclude volatile food and fuel, may have climbed 0.2 percent for a second month. Figures on June 14 may show wholesale prices were little changed last month.

The outlook for housing remains bleak. Building permits, a sign of future construction, likely fell in May for a second month, according to the survey ahead of a Commerce Department report on June 16. The same report will show builders broke ground on more houses after starts unexpectedly fell in April as flooding and tornadoes in the South closed construction sites, according the survey median.

--With assistance from Chris Middleton in Washington. Editors: Carlos Torres, Kevin Costelloe

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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