Retail Sales, Output Probably Steadied: U.S. Economy Preview

Retail Sales, Output Probably Steadied: U.S. Economy Preview


May 10 (Bloomberg) -- Retail sales in the U.S. probably stabilized in April and factory production fell at a slower pace, indicating the economic slump may be starting to ease, economists said before reports this week.

Purchases were unchanged after dropping 1.2 percent in March, according to the median estimate in a Bloomberg survey before the Commerce Department’s May 13 report. Industrial output fell 0.6 percent compared with a 1.5 percent decline a month earlier, figures from the Federal Reserve may show May 15.

Consumers are gaining confidence as financial markets thaw and job losses slow, making it more likely spending will see sustained gains later this year. Other reports may show the threat of inflation continues to subside as companies from Safeway Inc. to Chrysler LLC cut prices or boost discounts to lure customers.

“The worst part of the decline is behind us,” said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida. “That is the first step toward getting to an eventual bottom.”

Car dealers were among the retailers that struggled last month. Autos sales dropped to a 9.3 million annual pace from a 9.9 million rate in March.

Chrysler, whose U.S. sales tumbled 48 percent in April from the same month last year as bankruptcy neared, said last week it will offer rebates of as much as $6,000 to boost new-vehicle purchases. The incentives began May 6 and end June 1.

Sales Stabilize

Excluding demand for automobiles, retail sales probably rose 0.2 percent in April after a 1 percent drop the previous month, according to the survey median.

Kohl’s Corp. and BJ’s Wholesale Club Inc. were among retailers last week that said first-quarter preliminary earnings exceeded their forecasts and April sales signaled shoppers are returning to stores. Wal-Mart Stores Inc., the world’s largest retailer, said sales at U.S. stores open at least a year rose 5 percent, also beating estimates.

April same-store sales rose 0.7 percent, the first gain since September, according to a report last week from the International Council of Shopping Centers, the New York-based trade group that measures sales at about 40 retail chains.

“We’re still working our way through the slowdown,” said Mike Niemira, chief economist at the ICSC. “I think it will get better as the year progresses. The month of May will still be tough and I suspect by the summer that things will be a little broader in terms of the improvement.”

Sentiment Rises

A preliminary report from Reuters/University of Michigan on May 15 may show consumer sentiment in May climbed to the highest level in eight months. Americans are feeling less pessimistic as stocks rebound and job losses ease.

Payrolls fell by 539,000 last month after a 699,000 loss in March, the Labor Department reported last week. Still, the jobless rate climbed to 8.9 percent, the highest level since 1983, and will probably not retreat until an economic recovery is secured.

One reason a quick economic rebound is unlikely is companies are still cutting output to reduce the glut of inventories that piled up when sales plummeted late last year.

Chrysler has idled 13 U.S. assembly plants for multiple weeks to trim production by 190,000 vehicles from May through July. General Motors Corp. has also said it will extend the amount of time factories are shut in coming months to retool for the new model year.

A Commerce report May 13 may show companies cut inventories in March by 1.1 percent compared with a 1.3 percent drop in February, according to economists surveyed.

Lower Prices

Discounts are helping to whittle down stockpiles. Prices paid by U.S. consumers were probably unchanged in April after falling 0.1 percent the previous month, economists projected the Labor Department’s report on May 15 will show. The cost of living probably fell 0.6 percent in the year ended in April, the biggest drop since 1954.

Safeway, the third-largest U.S. grocery chain, on April 30 lowered its 2009 profit forecast and reported first-quarter earnings that trailed some analysts’ estimates after it cut prices.

“This is longer than a normal recession,” Safeway’s Chief Executive Officer Steven Burd said on a conference call with analysts. “Consumers are going to hunker down.”

Also this week, a May 12 report from Commerce may show the trade deficit widened in March as the global recession held down demand for U.S.-made goods. The gap widened to $29 billion after reaching a nine-year low of $26 billion in February, according to the survey median.

BLOOMBERG