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.
