Justin Sullivan
It seems that Americans are putting a pause on their national sport: shopping.
U.S. retail sales dipped for the first time in 11 months, according to data from the Commerce Department. The report showed that the numbers did better than both consensus and prediction, which is to say "not bad, but certainly not great," said Jennifer Lee, senior economist at BMO Nesbitt Burns Inc.
Sales at U.S. merchants fell 0.2 per cent in May, the first drop after 10 straight monthly increases. The results are slightly better than the consensus forecast of a 0.4 per cent drop.
Analysts say a rise in gas prices is largely behind the tepid numbers as consumers cutback on major purchases - say, cars - to pay for necessities - say, health insurance or rent. Spending on both discretionary and essential items was dealt a blow, while online sales and gardening equipment were the rare retail winners last month. Many consumers also opted to use funds for the small pleasures of home renovation and dining out, over purchasing big ticket items such as electronics or furniture.
The numbers confirm what we already know: in uncertain economic climates, consumers will spend on affordable luxuries. Leonard Lauder, chairman of Estée Lauder Cos. Inc., observed that lipstick sales spiked immediately following the September 11 terrorist attacks.
Stripping out the headline items - autos, gasoline and building materials - core sales climbed by 0.3 per cent (though, down slightly from a 3 month average of 0.7 per cent), suggesting that rising gas prices were powerful disincentives (it peaked at $4 U.S. a gallon in May from $2.95 same time last year), driving consumers away -- literally -- from expenses deemed unnecessary.
These core sales component contributes to the GDP numbers, likely suggesting that the second quarter consumer spending will show either a modest gain or a slowing trend from the first three months. This has led to a fall in the National Federation of Independent Business (NFIB) index for the third straight month, and from here, it is likely inevitable that more and more small businesses will react accordingly by reducing their payrolls over the next few months.
The weak U.S. retail numbers will do little to boost investor confidence: although inflationary pressures are easing and retail demand remains generally healthy, consumers remain weary. Lipstick sellers across the land, however, have much to smile about.