Retail Sales Unchanged; Import Prices Weak in April

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Retail Sales
Alan Diaz/APShoppers at Bayside Marketplace in downtown Miami.
By Lucia Mutikani

WASHINGTON -- U.S. retail sales were flat in April as households cut back on purchases of automobiles and other big-ticket items, indicating the economy was struggling to rebound strongly after barely growing in the first quarter.

The weak retail sales report from the Commerce Department, and other data released Wednesday showing the 10th straight month of declining import prices in April, suggest little urgency for the Federal Reserve to start raising interest rates.

"In terms of the Fed, the sluggish spending and economic growth performance will continue to argue for a later start to liftoff, essentially ruling out a mid-year hike," said Millan Mulraine, deputy chief economist at TD Securities in New York.

While March's retail sales were revised higher to show a 1.1 percent increase instead of the previously reported 0.9 percent rise, that wasn't enough to offset the general weak tone of the report. Economists had forecast sales up 0.2 percent in April.

Futures markets continued to show that traders don't expect an interest rate hike until December at the earliest. The dollar fell against the euro and the yen, while prices for U.S. Treasury debt rose. U.S. stocks were trading higher.

Retail sales excluding automobiles, gasoline, building materials and food services were also unchanged after an upwardly revised 0.5 percent increase in March.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Economists had forecast core retail sales rising 0.5 percent in April after a previously reported 0.4 percent increase in March.

Savings From Cheaper Gas

Retail sales have trended weaker despite households getting a massive windfall from lower gasoline prices. Consumers appear to have saved much of the money from the cheaper gasoline.

"The continuing weakness of retail sales in April brings into question our working assumption that the soft patch through the winter months was largely due to the unseasonably cold temperatures," said Paul Ashworth, chief economist at Capital Economics in Toronto.

Retailer Macy's (M) said net income fell to $193 million in the first quarter ended May 2 from $224 million, blaming the decline on cold weather and a strong dollar, which put a squeeze on spending by tourists.

The retail sales data added to employment and manufacturing reports in suggesting that while the economy was regaining its footing at the start of the second quarter, it lacked enough vigor to convince the Fed to tighten monetary policy before the end of the year.

The economy was walloped earlier in the year by a mix of bad weather, disruptions at ports, the strong dollar and deep spending cuts by energy firms. The government reported last month that GDP expanded at a 0.2 percent annual pace in the first three months of the year.

Economic Sluggishness

Trade and wholesale inventory data published last week, however, suggested the economy actually contracted. That was corroborated by a third report from the Commerce Department on Wednesday, showing business inventories barely rose in March.

The government will release its GDP revision later this month.

The case for the central bank to delay raising interest rates was strengthened by a separate report from the Labor Department showing import prices fell 0.3 percent in April after slipping 0.2 percent in March.

The dollar, which has gained about 11 percent against the currencies of the United States' main trading partners since June, and lower crude oil prices are keeping a lid on price pressures. That has left inflation running well below the Fed's 2 percent target.

Last month, retail sales were curbed by declines in receipts at auto dealerships, service stations, furniture and electronic and appliance stores.

There were some pockets of strength, with sales of clothing, sporting goods and building materials and garden equipment rising. Receipts at online stores rose as did those at restaurants and bars.

9 Numbers That'll Tell You How the Economy's Really Doing
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Retail Sales Unchanged; Import Prices Weak in April
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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