U.S. Economy: Retail Sales Fell Less Than Forecast in May

Weak Auto Deman
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. Photographer: Jim R. Bounds/Bloomberg

Sales at U.S. retailers fell less than projected in May, showing consumers were weathering elevated gasoline costs.

The 0.2 percent decrease reported by the Commerce Department in Washington today compared with the median forecast for a 0.5 percent drop in a Bloomberg News survey of economists. Excluding the biggest slide in auto sales in more than a year, purchases climbed 0.3 percent. Another report showed wholesale costs rose last month.

Stocks rallied on bets household demand, which accounts for about 70 percent of the U.S. economy, will improve as energy prices recede and the auto industry rebounds from the disaster in Japan. Chains including Limited Brands Inc. missed analysts’ estimates for May as fuel costs climbed to the highest level in almost three years and unemployment topped 9 percent.

“We are seeing sustained economic growth at a moderate pace,” John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said in a television interview on Bloomberg’s “In the Loop” with Betty Liu. “What we see is a consumer that continues to spend but is trying to economize.”

The Standard & Poor’s 500 Index rose 1.3 percent to 1,287.87 at the 4 p.m. close in New York, boosted in part by a report that industrial production in China rose more than estimated in May. Treasury securities fell, pushing the yield on the benchmark 10-year note up to 3.10 percent from 2.99 percent late yesterday.

Wholesale Prices

The increase in wholesale costs last month was led by higher prices for fuel and plastic products, according to the Labor Department. The 0.2 percent increase in the producer-price index followed a 0.8 percent advance in April.

Higher input prices mean companies like Under Armour Inc. are passing on increased costs to consumers. At the same time, Federal Reserve Chairman Ben S. Bernanke has reiterated that he expects commodity costs to ease in coming months.

Economists’ estimates for retail sales in May ranged from little change to a decline of 1.4 percent. Retail sales in April rose 0.3 percent, less than the 0.5 percent gain previously reported.

Six of 13 major categories showed declines last month, led by a 2.9 percent drop at auto dealers and parts suppliers, the biggest decrease since February 2010.

Auto Sales

That is consistent with industry data. 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. General Motors Co. and Ford Motor Co. reported a decline in U.S. deliveries from the same month last year.

Some of the drop in demand last month reflected a shortage of Japanese-made vehicles after the earthquake and tsunami disrupted supplies. With inventories running low, companies offered smaller discounts, which also deterred buyers.

“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.”

Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales climbed 0.2 percent, the smallest gain this year, after a 0.3 percent increase the prior month. Filling station sales climbed 0.3 percent.

Best Buy

Best Buy Co., the world’s largest consumer electronics retailer, today reported first-quarter profit that exceeded analysts’ forecasts, helped by rising demand for smartphones.

The retail sales figures, which aren’t adjusted for inflation, got a boost from receipts at service stations that reflected higher gasoline costs. 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 $3.70 as of yesterday.

Another report today showed that business inventories rose in April as sales cooled. The 0.8 percent advance in stockpiles followed a 1.3 percent increase in the prior month and compared with a 0.9 percent rise that was the median forecast of economists surveyed by Bloomberg News, Commerce Department figures showed today in Washington.

Hiring Slowdown

A slowdown in hiring was probably among the reasons at least 15 retailers fell short of estimates for sales at stores open at least a year.

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.

Limited, the Columbus, Ohio-based operator of Victoria’s Secret, reported a 6 percent gain in May same-store sales from the same month in 2010, missing the 7.4 percent average of analysts’ projections compiled by Retail Metrics.

Consumer spending will grow an average 2.95 percent annual rate 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.

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