Many analysts expect May retail sales to drop

NEW YORK -- The weather has finally thawed, so what about the icy grip consumers have kept on their wallets?

Thursday's retail sales numbers for May will offer insight into whether an uptick in consumer confidence translated into actual spending, as rising unemployment and tumbling home prices continued to weigh on consumers.

Consumer confidence has surged this spring. In May, the Conference Board's consumer confidence index rose to its highest level since September, following a big gain in April. But there are still many pressures on shoppers, including job worries — the nation's unemployment rate jumped to 8.9% in April, the highest in 25 years — and tumbling home prices.

"Consumers are still feeling pain as the recession continues to drag on in spite of green shoots," said Ken Perkins, president of RetailMetrics, who predicts a 3.9% drop for May in overall same-store sales compared with a year earlier. That compares to a 0.7% increase in April boosted by sales tied into Easter.

Same-store sales, or sales in stores open at least one year, are considered a key retail metric.

Economists closely monitor consumer spending because it accounts for about 70% of economic activity. Analysts say there may have been a fundamental shift in consumer spending habits.

"We're moving from a time of irrational credit and debt demand spending to recession frugality, similar to what people's grandparents did during the Great Depression of the 1930s," said retail consultant Burt Flickinger III, managing director of Strategic Resource Group.

In fact, The Commerce Department reported Monday that Americans' personal savings rate jumped to 5.7% in April, the highest since February 1995. Consumer spending dipped 0.1% in April. That was slightly less than the 0.2% reduction economists were expecting, although it meant consumers are still limiting spending.

In response to the consumer spending drop-off, retailers have cut their expenses and reduced inventory and head count. In some cases they brought in new management.