Retail sales climb 0.5 percent in May

6/11/2009

WASHINGTON Retail sales rose by the largest amount in four months in May, as a rebound in demand at auto dealerships and gas stations helped to offset continued weakness at department stores.

The Commerce Department said Thursday retail sales increased by 0.5 percent last month, in line with economists expectations. It was the largest increase since sales surged by 1.7 percent in January following six straight declines.

The May advance could be another signal that the worst of the recession is over. However, the all-important consumer sector is not expected to come roaring back, given all the troubles facing households as the country slogs through the worst recession in decades.

The 0.5 percent May increase followed two straight declines including an April drop of 0.2 percent, which was originally estimated as a larger 0.4 percent fall.

Auto sales rose by 0.5 percent last month, the best showing since a 2.7 percent surge in January. Even with the gain, sales are still 21.5 percent below where they were a year ago as auotmakers continue to struggle with the worst sales environment in decades. In an effort to spur demand, automakers have stepped up their incentive offers.

Excluding autos, retail sales were up 0.5 percent in May, better than the 0.2 percent gain that economists had been expecting.

Much of that strength, however, came from a 3.6 percent jump in sales at gasoline service stations, an increase which reflected in large part rising gasoline prices. The retail sales are not adjusted for inflation.

Sales were also up at hardware stores, grocery stores and and health stores.

Those gains helped to offset a 0.2 percent drop at general merchandise stores, a category which includes department stores and big retail chains such as Wal-Mart.

Last week, many U.S. retailers reported disappointing sales for May. The tally by Goldman Sachs and the International Council of Shopping Centers showed that overall same-store sales fell 4.6 percent, worse than the 3 percent drop predicted. Sales at stores open for at least a year are considered a key barometer of retail health.

To cope with the longest recession of the post World War II period and an unemployment rate which has hit a 25-year high of 9.4 percent, many families are spending less and saving more as they deal with layoff fears and shrunken home equity and retirement accounts.

In one hopeful sign, a Federal Reserve snapshot of economic conditions issued Wednesday found that five of the central bank s 12 regions said the economy s downward trend is showing signs of moderating, and hopes for future business activity improved.

The Fed survey is consistent with observations from Fed Chairman Ben Bernanke and other central bank officials that the recession which started in December 2007 and is now the longest since World War II is loosening its grip on the economy.

Many analysts predict the economy is sinking at a pace of between 1 and 3 percent in the current quarter. If they are right, that would mark a big moderation from the steep declines seen since last fall. The economy shrank at a pace of 6.3 percent in the final quarter of last year, and by 5.7 percent in the first three months of this year. It marked the worst six-month performance in 50 years.