Retail Sales Probably Dropped in April: U.S. Economy Preview

Retail Sales Probably Dropped in April: U.S. Economy Preview


May 11 (Bloomberg) -- Sales at U.S. retailers probably fell in April as the biggest housing slump in a quarter century, record gasoline prices and the loss of jobs took their toll, economists said before reports this week.

Purchases fell 0.2 percent, following a 0.2 percent gain the prior month, according to the median estimate in a Bloomberg survey before the Commerce Department's May 13 report. Other reports may show housing starts fell to a 17-year low and rising food and fuel prices continued to push up the cost of living.

Plummeting property values are eroding household wealth just as Americans have to ante up a bigger share of their paychecks to fill gas tanks and feed their families. Concern over inflation may cause the Federal Reserve to keep interest rates unchanged in coming months, even as the threat of a recession still looms.

``Consumer spending has already noticeably downshifted,'' said Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. ``This should keep overall economic activity sub-par.''

Expensive items like automobiles saw the biggest drop in demand last month. Cars and light trucks sold at a 14.4 million annual pace in April, the fewest in almost a decade.

Retail sales excluding automobiles increased 0.2 percent after a 0.1 percent rise in February, according to the Bloomberg survey median. An increase in spending at service stations, reflecting the jump in gasoline prices, probably inflated the figure, economists said.

Spending to Slow

Consumer spending may grow at an annual rate of 0.5 percent this quarter, down from a 1 percent pace in the first three months of 2008, according to the median estimate of economists surveyed by Bloomberg News from May 2 to May 8.

Spending will rebound to a 2.3 percent growth rate in the third quarter as the bulk of the $117 billion in tax-rebate checks included in a government stimulus plan are spent, the survey showed. That will be followed by a deceleration to a 1.6 percent pace to end the year.

``While the rebates will be helpful in the short run, they won't generate a sustained increase in spending,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. ``By the fourth quarter, growth will look disappointing to most people.''

In its first two weeks, the government has sent out $27.2 billion in rebates, the Treasury Department said May 9.

The stimulus probably won't be enough to keep the economy from stagnating in the second quarter. The economists surveyed by Bloomberg forecast overall growth this quarter at 0.1 percent, the weakest since 2001.

Looking for Discounts

Shoppers have been flocking to discount stores to stock up on staples and gasoline. Costco Wholesale Corp., the largest U.S. warehouse-club chain, last week said April sales at stores open at least a year rose 8 percent as customers sought less-expensive clothing and discounted fuel.

Consumer prices rose 0.3 percent in April, matching the prior month's gain, according to the median forecast ahead of the Labor Department's May 14 report. Excluding food and energy, prices rose 0.2 percent for a second month.

Continuing price gains, as oil, corn and other commodity prices soar, may prompt the Fed to hold rates steady at its June 25 meeting, according to trading in the futures market.

Housing is likely to continue to be the economy's weakest link for the rest of the year.

Construction Slump

A Commerce Department report May 16 may show work began on 940,000 homes at an annual rate in April, the fewest since March 1991, according to the survey median. Declines in construction will continue to hurt the economy after detracting from growth for the past nine quarters, said Drew Matus, a senior economist at Lehman Brothers Holdings Inc. in New York.

Another report the same day may show consumer confidence continues to weaken. The Reuters/University of Michigan preliminary sentiment index may decline to 62 in May, the lowest level since March 1982.

Reports on manufacturing are likely to show factories are cutting back as demand slows. Output at the nation's factories, mines and utilities dropped 0.3 percent last month, economists projected a May 15 report from the Fed will show.

BLOOMBERG