Gov't: Retail Sales Rise in April, But Short of Estimates

In a sign that the economy may be slowing, retail sales were weaker than expected in April as soaring gasoline prices forced consumers to cut back on spending in other areas.

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Retail sales rose by 0.5 percent last month following a 0.6 percent advance in March, the Commerce Department reported Thursday.

The April increase was weaker than the 0.8 percent Wall Street had been expecting and was disappointing in light of reports last week of strong April sales at the nation's big chain stores, reflecting warmer-than-usual weather and a late Easter that boosted clothing sales.

The government report, which is seasonally adjusted to take account of such things as the changing date for Easter, showed that virtually all of the strength last month came from a big 4.6 percent jump in sales at gasoline stations. That reflected a sharp rise in prices with gasoline selling near $3 per gallon in many parts of the country, up about 50 cents since early March.

Excluding gasoline sales, retail sales rose a minuscule 0.1 percent in April, raising concerns among economists about how much strength the consumer sector will provide in coming months if gasoline prices stay elevated.

"When you exclude gasoline sales, which were propelled by huge price increases, households didn't buy an awful lot in April," said Joel Naroff, chief economist at Naroff Economic Advisors.

Analysts worried about the impact on the overall economy if consumer demand does weaken. Consumer spending accounts for two-thirds of total economic growth and has been a standout performer in the current economic expansion.

"The persistence of high gasoline prices will continue to siphon gains in other retail sales categories in the second quarter," said Brian Bethune, an economist at Global Insight.

He predicted that consumer spending, which had risen at an annual rate of 5.5 percent in the first three months of this year, would slow to a 2.8 percent growth rate in the current April-June quarter.

The overall economy grew at a sizzling 4.8 percent rate in the first three months of the year, but analysts believe growth in the second quarter will slow to around 3.5 percent.

David Jones, chief economist at DMJ Advisors, said such a slowdown is just what the Federal Reserve is hoping will occur to make sure inflation pressures do not worsen.

He said the retail sales report increases the chances that the Fed, which boosted interest rates for a 16th consecutive time on Wednesday, will take a pause at its June meeting to assess the impact its two-year long credit tightening campaign is having on the economy.

Separately, the Labor Department reported that the number of Americans filing new claims for unemployment benefits totaled 324,000 last week, down by 1,000 from the previous week.

That was less of an improvement than private economists had been expecting but the figure was influenced by a temporary government shutdown in Puerto Rico that added about 20,000 workers to the claims figure for last week.

The 0.5 percent rise in April retail sales was the weakest showing since a 0.8 percent drop in sales in February.

Analysts believe consumer spending will slow further in coming months as Americans deal with the impact of the spike in gasoline prices and rising interest rates.

The Fed's rate increase this week triggered an immediate rise in short-term borrowing costs for businesses and consumers. Commercial banks announced they were boosting their benchmark prime lending rate to a five-year high of 8 percent.

The higher borrowing costs are expected to cut into consumer demand for interest-sensitive products such as homes and autos. The Fed's goal has been to slow the economy enough to keep inflation under control.

For April, auto sales fell by 0.4 percent following a 1 percent increase in March. Sales at furniture stores and hardware stores, which have benefited from a five-year housing boom, were also off in April, reflecting the slowdown in home sales this year.

Sales at clothing specialty stores posted a 0.3 percent increase, while sales at general merchandise stores, a category that includes traditional department stores as well as giant chains such as Wal-Mart (WMT), rose by 0.8 percent in April after posting no gain in March.

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