Stocks fall after unexpected drop in retail sales

June 11, 2010 The Commerce Department said retail sales fell 1.2 percent in May. It was the first drop in sales in eight months and was well short of forecasts. Economists polled by Thomson Reuters had predicted the pace of growth would slow between April and May, but still rise 0.4 percent. The drop in sales was widespread.

The disappointing report comes a day after stocks surged on upbeat global economic data. The back-and-forth movements fit into the trend of extreme volatility that has been seen in recent weeks. The Dow Jones industrial average has had only one two-day winning streak since late April, and that included a day where it rose just 6 points. That's a sign of uncertainty among traders.

The Dow fell nearly 73 points early Friday. It climbed 279 points Thursday after reports showed the global economy is healing, despite persistent worries that Europe's sovereign debt crisis would curtail any recovery.

The retail sales report marks the second straight Friday that futures retreated after weak domestic economic news. Investors were looking for the sales data to provide reassurances about the nation's health a week after a disappointing employment report casted doubt about momentum in the economy.

In early morning trading, the Dow fell 72.55, or 0.7 percent, to 10,099.98. The Standard & Poor's 500 index fell 8.29, or 0.8 percent, to 1,078.55, while the Nasdaq composite index fell 13.47, or 0.6 percent, to 2,205.24.

Reports on consumer sentiment and business inventories due out later Friday could provide some relief after the sales report.

The Commerce Department is expected to say business inventories rose 0.5 percent in April after climbing 0.4 percent in March.

Inventories usually only jump when businesses become more confident that consumers will return to stores.

Consumer spending is vital to a sustained recovery because it is the primary driver of economic activity.

Economists also predict sentiment among consumers is growing, even though unemployment remains high. A preliminary reading of the Reuters/University of Michigan consumer sentiment index for May likely rose to 74.5 from 73.6.