Retail sales fall, smacking stocks, denting recovery hopes
WASHINGTON -- Retail sales fell for a second month in April, a disappointing performance that knocked stock prices down and raised doubts about how soon consumers are going to help push the economy out of recession.
The Commerce Department said Wednesday that retail sales fell 0.4% last month, much worse than the flat reading economists expected. The April weakness followed a 1.3% drop in March that was worse than first estimated.
The retail report is a key indicator of consumer spending, which accounts for two-thirds of economic activity. Most experts believe the recession won't end until consumer spending picks up for an extended period, re-igniting business confidence and an improvement in employment.
Widening losses in earnings reports from retailers Macy's and Liz Claiborne added to the gloom that sent major stock indexes down almost 2% Wednesday.
Retail sales had posted gains in January and February after falling six straight months, raising hopes that the consumer sector might be stabilizing. But the setbacks in March and April could darken some forecasts.
The hope had been that consumers were starting to feel better about spending, helped by tax breaks included in the $787 billion stimulus bill. Households spent the fall hunkered down in the face of hundreds of thousands of job layoffs and the worst financial crisis since the 1930s.
The latest retail data "are yet another illustration that, although the worst is now over, there is still no evidence of an actual recovery," Paul Dales, U.S. economist with Capital Economics in Toronto, wrote in a research note.
While anecdotal evidence suggests some improvement in sales in recent weeks, "to offset the plunge in wealth, the household saving rate still needs to double from the current rate of 4%," Dales wrote. "With falling employment hitting incomes, this can only be achieved by a further retrenchment in spending."
Another report said U.S. businesses slashed their inventories for a seventh consecutive month in March, the longest stretch in seven years, as companies struggled to cope with a prolonged recession.
