Bloomberg News

U.S. Retail Sales Probably Fell on Drop in Auto Purchases

June 10, 2012

Retail Sales Probably Fell on Auto Demand

Gains of 11 percent at General Motors Co. trailed analysts’ projections. Photographer: Daniel Acker/Bloomberg

Retail sales in the U.S. probably declined in May for the first time in a year as slower employment and subdued wage gains damped demand for automobiles, economists said before reports this week.

The projected 0.2 percent decrease last month would follow a 0.1 percent gain in April that was the smallest this year, according to the median forecast of 62 economists surveyed by Bloomberg News ahead of Commerce Department figures due June 13. A measure of the cost of living fell last month for the first time in two years, reflecting cheaper gasoline prices, other data may show.

Limited payroll growth and unemployment exceeding 8 percent may make it tough for consumer spending to improve after a first-quarter pace that was the fastest in a year. At the same time, lower prices at the gasoline pump are providing relief for Americans and also helping contain inflation, giving the Federal Reserve more room to stimulate the economy should Europe’s debt crisis worsen.

“Retail sales will be quite soft,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “It is quite evident that the job market is slowing. The Fed is much more worried about the high level of unemployment than about inflation, which is likely to remain moderate.”

Household purchases will grow at 2.3 percent annual rates in each of the final three quarters of 2012, according to the median forecast in a separate Bloomberg survey of economists taken from June 1 to June 5. Consumer spending, which accounts for about 70 percent of the economy, expanded at a 2.7 percent pace last quarter.

Labor Market

Monthly employment gains have decelerated from a high this year of 275,000 in January, Labor Department figures show. Payrolls rose 69,000 in May following a 77,000 increase in April. The jobless rate climbed to 8.2 percent from 8.1 percent. Average hourly earnings rose 1.7 percent last month from May 2011, the smallest increase since December 2010.

Cooling employment and a drop in stock prices since the end of April are also weighing on Americans’ confidence. A report on June 15 may show the Thomson Reuters/University of Michigan preliminary index of sentiment fell this month from the highest level since October 2007, economists projected.

Atlanta-based Home Depot Inc., the largest U.S. home- improvement retailer, is among companies whose business plans assume slower economic growth and stubborn joblessness.

“We will still face higher-than-normal unemployment and underemployment rates, with the consequence that value will remain of major importance to our customers,” Chief Executive Officer Frank Blake said on an analyst conference on June 6. “Growth will be moderate.”

Auto Sales

Cars and light trucks sold at a 13.7 million annual rate in May after April’s 14.4 million pace, Ward’s Automotive Group data showed. Gains of 11 percent at General Motors Co. (GM:US) and 30 percent at Chrysler Group LLC trailed analysts’ projections. Ford Motor Co. (F:US), the only major automaker whose 13 percent increase in sales topped estimates, boosted incentives by about $100 per vehicle.

Retail sales excluding autos probably were little changed last month, according to the Bloomberg survey median.

The Commerce Department’s retail sales data, which aren’t adjusted for prices, will reflect cheaper gasoline. A gallon of regular fuel at the pump cost an average $3.71 in May, down from this year’s peak of $3.94 on April 4, according to AAA, the biggest U.S. auto group. It was $3.56 on June 7.

Less expensive gasoline may have helped free up cash for other purchases such as clothing and home goods. May same-store sales climbed more than analysts projected for Target Corp. (TGT:US), the second-largest U.S. discount chain, and Limited Brands Inc. (LTD:US), the operator of the Victoria’s Secret lingerie stores, company reports showed.

Retail Sales

Investors are counting on Americans to keep shopping. The Standard & Poor’s Supercomposite Retailing (S15RETL) Index, which includes Macy’s Inc. and Gap Inc., has gained more than 16 percent this year through June 8, compared with a 5.4 percent advance for the broader S&P 500. (SPX)

The decline in fuel costs is also subduing inflation. The consumer price index, the broadest of three gauges issued by Labor Department each month, fell 0.2 percent in May after no change in April, according to the Bloomberg survey median. The report is due June 14.

Receding inflation gives the Fed more flexibility to take steps to spur the economy if needed.

“The situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely,” Fed Chairman Ben S. Bernanke told lawmakers on June 7. “As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate.”

Manufacturing continues to support the economic expansion, albeit at a slower pace, Fed reports may show this week. Industrial production grew 0.1 percent in May after a 1.1 percent increase that was the biggest in more than a year, according to the Bloomberg survey median. The report is due June 15.

                         Bloomberg Survey

==============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
==============================================================
PPI  MOM%                 6/13      May      -0.2%     -0.6%
Core PPI MOM%             6/13      May       0.2%      0.2%
PPI  YOY%                 6/13      May       1.9%      1.2%
Core PPI YOY%             6/13      May       2.7%      2.8%
Retail Sales MOM%         6/13      May       0.1%     -0.2%
Retail ex-autos MOM%      6/13      May       0.1%      0.0%
Retail exauto/gas MOM%    6/13      May       0.1%      0.4%
Retail control MOM%       6/13      May       0.4%      0.3%
CPI  MOM%                 6/14      May       0.0%     -0.2%
Core CPI MOM%             6/14      May       0.2%      0.2%
CPI  YOY%                 6/14      May       2.3%      1.8%
Core CPI YOY%             6/14      May       2.3%      2.2%
Initial Claims ,000’s     6/14     9-Jun      377       375
Ind. Prod. MOM%           6/15      May       1.1%      0.1%
U of Mich Conf. Index     6/15     June P     79.3      77.5
=============================================================

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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