Cautious consumers could see lower prices ahead

A shop­per looks at expen­sive jew­elry at Costco in Moun­tain View, Calif. Con­sumers spent less on autos, fur­ni­ture and food in May, send­ing retail sales down for the first time in nearly a year. (ASSOCIATED PRESS | PAUL SAKUMA)

CHRISTOPHER S. RUGABER

AP Eco­nom­ics Writers

WASHINGTON — Con­sumers are spend­ing cau­tiously in the face of still-high gaso­line and grocery-store prices and restrain­ing the economy’s growth.

But some relief could be on the way: Whole­sale food prices dropped last month by the most in a year. And motorists are likely to face lower gaso­line prices this sum­mer. CEOs for the nation’s largest com­pa­nies say they plan to step up hir­ing over the next six months.

Retail sales fell 0.2 per­cent in May, the Com­merce Depart­ment said Tues­day. The first decline in nearly a year occurred mainly because Amer­i­cans bought fewer cars.

The drop in auto sales was 2.9 per­cent, the sharpest drop in 15 months. But it was largely because of tem­po­rary fac­tors: Buy­ers received fewer dealer incen­tives, and deal­ers ran short on pop­u­lar fuel-efficient mod­els. The nat­ural dis­as­ters in Japan dis­rupted ship­ments of cars and com­po­nent parts to the United States.

Exclud­ing the drop in car sales, retail sales rose 0.3 per­cent. That gain seemed to please investors, who were expect­ing broad declines because of high gas prices. The Dow Jones indus­trial aver­age rose 136 points in mid­day trad­ing. Broader indexes also increased.

“The decline in head­line retail sales dur­ing May can be chalked up to slump­ing auto sales,” said Alis­tair Bent­ley, an econ­o­mist at TD Eco­nom­ics. “This was to be expected fol­low­ing the sharp rise in gas prices and the tsunami in Japan, and thus should not be inter­preted as a dra­matic swing in con­sumer sentiment.”

Other signs emerged that the econ­omy could strengthen in the sec­ond half of the year — espe­cially the prospect of lower prices at gro­cery stores and gas stations.

Food costs at the whole­sale level fell by the most in a year, accord­ing to a gov­ern­ment report on pro­ducer prices. Fruit and veg­etable prices led the declines. Toma­toes plum­meted 47 per­cent, the most since last June. Spinach prices dropped 48 per­cent, and water­mel­ons fell 74 percent.

Gas prices at the whole­sale level rose by the small­est amount in eight months. Con­sumers had been pay­ing an aver­age of nearly $4.00 for a gal­lon of gas in early May. On Mon­day, the national aver­age was $3.70 a gal­lon, accord­ing to AAA. Still, that’s a dol­lar more than what con­sumers paid a year ago.

Higher gas prices have left con­sumers with less to spend on dis­cre­tionary goods. Ana­lysts think the econ­omy will regain momen­tum in the sec­ond half of this year if gaso­line prices fall further.

A major­ity of lead­ers for the largest U.S. com­pa­nies appear to share that opti­mism, accord­ing to a sur­vey. The Busi­ness Round­table, which rep­re­sents CEOs for the 200 biggest U.S. com­pa­nies, said 51 per­cent of chief exec­u­tives plan to step up hir­ing in the sec­ond half of the year. That’s nearly in line with last quarter’s 52 per­cent — the high­est per­cent­age since the trade group began polling its mem­bers in 2002.

The sur­vey began in mid-May and ended on June 3, the day the gov­ern­ment released the May jobs report, which showed a steep pull­back in hir­ing. The unem­ploy­ment rate rose to 9.1 percent.

Man­pow­er­Group, one of the nation’s largest staffing com­pa­nies, said employ­ers are likely to hire at a mod­est pace through the sum­mer. That’s an improve­ment since the reces­sion but hir­ing hasn’t returned to lev­els con­sis­tent with a healthy economy.

Busi­ness added to their stock­piles for the 16th straight month in April, another sign that com­pa­nies are con­fi­dent that con­sumers will spend more in the sec­ond half of the year.

The Com­merce report did show that the pace in which busi­nesses sold those goods in April fell to the slow­est in 10 months. But econ­o­mists said the decline in sales growth was not a con­cern because the ratio of inven­to­ries to sales remained at his­tor­i­cally low lev­els in April. That means com­pa­nies are unlikely to get stuck with huge stock­piles of goods.

The retail sales report high­lighted other areas of weak­ness in the econ­omy. Sales at depart­ment stores and big gen­eral mer­chan­dise stores such as Wal-Mart and Tar­get edged down 0.1 per­cent in May. Many of the nation’s big retail chains reported shop­pers pulled back on such as cloth­ing and home goods.

Sales also fell at fur­ni­ture stores and elec­tron­ics and appli­ance stores. Those declines prob­a­bly reflected the weak­ness in the hous­ing market.

Econ­o­mists sur­veyed by The Asso­ci­ated Press now believe the econ­omy will show only a mod­est growth pickup in the cur­rent April-June quar­ter. They fore­cast growth at an annual rate of 2.3 per­cent. That would be only a slight improve­ment from the lack­lus­ter 1.8 per­cent growth in the January-March quarter.

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