Consumer spending increases slightly

April 14, 2008 7:13:15 AM PDT
The economy continues to take baby steps, according to a new report. Consumers, beset by a credit crunch, rising energy and food costs and a prolonged housing slump, stayed away from the malls in March. Retail sales posted only a small increase after a big drop in February.

The Commerce Department reported Monday that retail sales edged up 0.2 percent in March after a 0.4 percent decline in February. The March gain primarily reflected higher costs for gasoline, which climbed to record highs. Excluding a big 1.1 percent rise in sales at gasoline service stations, retail sales would have been flat last month.

The new report did nothing to dispel worries that consumers will cut back so sharply on spending that the country will tumble into a recession. Consumer spending accounts for two-thirds of total economic activity.

Consumer confidence plunged to the lowest reading in 26 years in early April, according to the University of Michigan's consumer sentiment index, underscoring the pressures that households are facing and raising the likelihood that retail sales will remain depressed in coming months.

"There's no question the trend in core sales is slowing sharply, led by housing-related sectors," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "All businesses reliant on discretionary spending will suffer."

In other economic news, the Commerce Department said that inventories held by businesses on shelves and backlots increased by 0.6 percent in February after an even bigger 0.9 percent gain in January.

The increase in inventories, while boosting overall economic output in the first quarter, will likely act as a drag in coming months as businesses cut back on production to reduce stockpiles to more comfortable levels.

The 0.2 percent increase in retail sales was slightly better than the 0.1 percent increase that analysts had expected and the February decline was revised from an even-bigger 0.6 percent plunge that had been initially reported.

However, the March gain reflected the big jump in sales at gasoline service stations. Sales in most areas either declined or posted lackluster increases such as a tiny 0.2 percent rise in auto sales.

Sales at department stores and general merchandise stores such as Wal-Mart fell by 0.6 percent in March while sales at specialty clothing stores were down 0.5 percent. Demand at these stores had been hurt by the fact that Easter came extremely early this year at a time when much of the country was still blanketed by frigid weather that chilled people's inclination to go shopping for spring clothes.

Sales were also down at furniture stores, building supply stores and appliance stores, all areas where demand has been hurt by the bursting of the housing bubble. In addition to the 1.1 percent increase in sales at gasoline service stations, sales were up 0.3 percent at grocery stores, a gain that probably reflected continued big rises in food costs.

Consumers are battling a number of problems, from soaring energy prices which have pushed gasoline pump prices up to record levels well above $3 per gallon, to a prolonged housing slump that has seen home prices plummet in many parts of the country, leaving consumers feeling less well off.

Many economists believe the country has fallen into a recession which they believe will be short and relatively mild, ending this summer when 130 million households start spending their rebate checks from an economic stimulus package that Congress passed in February.


Load Comments