US consumers spend less, recovery seen on horizon

US consumers have not pulled back aggressively despite the recent slowdown in the economy, retail sales data showed on Tuesday, and falling gasoline prices should support growth in the months ahead. Retail sales fell in May for the first time in 11 months as auto sales took a hit from the damage wrought by Japan's earthquake and other spending softened too.
Sales slipped 0.2 percent, the Commerce Department said on Tuesday, after a 0.3 percent rise in April. However, the decline was less than economists' expectations for a 0.4 percent fall and sales excluding motor vehicles rose 0.3 percent, helping to buoy US share prices. US government debt prices tumbled as investors showed relief that the sales were not as weak as forecast.
--- Retail sales fall, first drop in 11 months
--- Sales ex-autos up, smallest gain since July
--- Producer prices up, slow sharply from April
Sentiment over the economy, which had been shattered by a recent string of surprisingly weak data, was also lifted by a separate report showing a moderation in wholesale inflation last month. "Consumers are not panicking. We should begin to emerge from the soft patch in the second half of the year, a lot of the drags on the recovery are fading," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester Pennsylvania.
Economists are looking for second-quarter growth between 2 percent and 2.5 percent, supported by a narrower trade deficit in April, after a 1.8 percent pace in the first quarter. The economy started the year on a soft note beset by bad weather and rising oil prices, and limped into the second quarter as supply chain disruptions after Japan's earthquake in March took hold.
Disruptions to motor vehicle production, which left dealers with lean inventories and unable to offer customers incentives, pushed auto sales down 2.9 percent - the largest decline since February 2010 - and depressed overall retail sales. Prices received by US producers rose just 0.2 percent last month after increasing 0.8 percent in April as gasoline prices fell. The drop in gasoline costs should come as welcome relief for consumers.
Receipts at gasoline stations rose 0.3 percent in May, the weakest rise since June. Gasoline prices have dropped to about $3.78 a gallon from just over $4 a gallon in early May. Best Buy Co Inc, the largest US electronics chain, on Tuesday reported its fourth straight quarter of same-store sales declines on weak demand for televisions.
At the same time, however, Best Buy kept its profit outlook for the year, citing strong demand for mobile phones and tablets. The retail sales report painted a generally weak picture of consumer spending, though sales at building materials and garden equipment suppliers rose 1.2 percent. Core retail sales, which exclude autos, gasoline and building materials, rose 0.2 percent in May after advancing 0.3 percent in April. Core sales correspond most closely with the consumer spending component of the government's gross domestic product report, which rose at a 2.2 percent annual pace in the first quarter.