By Don Miller
Associate Editor
Money Morning
Those elusive "green shoots" that economic optimists had been digging up lately were buried under disappointing data from the Commerce Department in Washington yesterday (Wednesday) when it was revealed that retail sales in the unexpectedly dropped in April.
Sales at U.S. retailers dropped 0.4%, the eighth monthly decline in the last 10 months, following a revised 1.3% drop in March that was larger than previously estimated. Excluding auto dealers, sales fell 0.5%
Economists had expected an increase of 0.5% to 1.0%. Since July, retail sales have shown increases only in January and February, and those were attributed to post-holiday sales.
The disappointing numbers indicate surging unemployment and the worst housing market in decades could temper consumers' appetite for spending for years, analysts said. As long as consumer spending is muted, which accounts for about 70% of all economic activity, any recovery from the worst recession in over 50 years is likely to be slow and difficult.
"These numbers are certainly discouraging, a bit disheartening," David Resler, chief economist at Nomura Securities (ADR NYSE: NMR) in New York, told Reuters.
The news sent U.S. stock index futures reeling to steep losses in New York trading, while government bond prices enjoyed their biggest gains in weeks.
There can be little doubt that soaring unemployment is curtailing consumer spending. Unemployed workers naturally cut back on purchases and recent statistics suggest those that are still working are increasing their savings rate.
Despite the fact that payrolls fell by only 539,000 workers in April, the smallest drop since October, the jobless rate climbed to 8.9%, the highest level since 1983. Economists surveyed this month by Bloomberg predicted the jobless rate would average 9.6% in 2010.
The same survey also showed consumer spending will be unchanged this quarter after rising 2.2% during the first three months of the year. Last month, economists had forecast spending would fall at a 0.5% annual pace in the second quarter.
"The second quarter is going to be tough," Bill Cheney, chief economist at John Hancock Financial Services Inc. in Boston, said in a Bloomberg Television interview. "Consumers are losing their jobs, concerned about losing their jobs and losing wealth."
Retail sales fell even as consumer confidence started to rebound. According to last month's report by the Conference Board, a New York-based private research group, consumer sentiment jumped in April by the most since 2005.
Falling demand at electronics, furniture, clothing and grocery stores led the decline in sales.
Gas stations also reported falling receipts in April, even though fuel prices climbed, indicating Americans may be cutting back on driving just as the U.S. enters the usually busy summer months.
Imported petroleum prices were up 15.4% in April - the largest monthly rise since a 17% increase in March 2002 - after February and March figures were revised upwards to 5.3% and 7.9% respectively.
Sales at car dealers were among the few retailers to show an increase last month. Auto sales gained 0.2% after falling 2% in March.
Counter to an industry report last week, the government's data said sales at clothing retailers decreased 0.5%.
According to last week's report from the International Council of Shopping Centers, the New York-based trade group that measures sales at about 40 retail chains, April same-store sales rose 0.7%, the first gain since September.
Wal-Mart Stores Inc. (NYSE: WMT), the world's largest retailer, said sales at U.S. stores open at least a year rose 5%. Other retailers that said first-quarter earnings exceeded their forecasts included Kohl's Corp. (NYSE: KSS) and BJ's Wholesale Club Inc. (NYSE: BJ).
Those reports had raised hopes that shoppers are returning to stores. But yesterday's report had retailers preaching patience.
"We're still working our way through the slowdown," Mike Niemira, chief economist at the ICSC, told Bloomberg. "I think it will get better as the year progresses. The month of May will still be tough and I suspect by the summer that things will be a little broader in terms of the improvement."
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