Economy Economist: Soft economic growth may get softer

By Martin Crutsinger AP Economics Writer WASHINGTON (AP) -- Americans barely increased their spending at retail businesses in April and May, constrained by weak job creation and paltry wage increases. A sharp drop in gas prices pulled down overall sales in both months by 0.2 percent, the Commerce Department said Wednesday. But excluding volatile gas station sales, retail sales grew only modestly in May and dipped in April. The report could lead economists to lower their outlooks for April-June economic growth. "Soft U.S. economic growth may get a little softer in (the April-June quarter) as it is not receiving much support from the all-important consumer," said Jennifer Lee, senior economist at BMO Capital Markets. Cheaper gas also lowered a measure of wholesale prices by the most in nearly three years. The producer price index, which measures price changes before they reach the consumer, dropped 1 percent in May, the Labor Department said in a separate report. That reflected a 9 percent fall in wholesale gas prices. The decline at the pump could bode well for consumers in the coming months, too. The average national price for a gallon of gas was $3.54 Wednesday -- 40 cents cheaper than the year's peak price in early April. And while overall retail sales barely budged in May, Americans did spend more on big purchases. Auto sales rose sharply, and sales of furniture and appliances also increased. That suggests consumers may already be seeing some benefit from lower gas prices. "The continued fall in gasoline prices should support consumption by freeing up cash to be spent on other items," said Paul Dales, senior U.S. economist at Capital Economics. "So although real consumption growth looks set to slow in (the second quarter), we doubt it will grind to a complete halt." The retail sales report is the government's first look at consumer spending, which drives 70 percent of economic activity. Total retail sales fell in May to $404.6 billion. That's slightly below March's record level of $406.2 billion and 21.6 percent higher than the recession low hit in March 2009. Gas station sales fell 2.2 percent in May, accounting for most of the decline in retail sales. Excluding gas station sales, retail spending rose just 0.1 percent in May. Sales at building supply stores, which include Home Depot, fell 1.7 percent in May. And general merchandise stores, a category that includes Wal-Mart and Target, fell for the second straight month. Part of the decline in those categories may be payback for stronger spending at the start of the year. A mild winter encouraged some homeowners to get a head start on remodeling and landscaping projects, which normally take place in spring. Still, economists worry that consumer spending may further weaken if hiring and pay doesn't pick up. Workers' average hourly earnings have risen just 1.7 percent in the 12 months ended in May. That's well below the pace of inflation during this period. And job growth has slowed since the start of the year. Employers added 226,000 jobs on average during the first three months of the year; they have added an average of 73,000 jobs a month since April. In the January-March quarter, overall economic growth slowed to an annual rate of 1.9 percent, down from a 3 percent rate of increase in the October-December period. The strength in the first three months of this year was led by the fastest growth in consumer spending in more than a year. Published: Thu, Jun 14, 2012