By Jeffrey Sparshott
U.S. consumers are proving to be reluctant spenders despite
steady job creation and cheaper gasoline, another drag on a sharply
slowing economy.
In the latest sign of consumer caution, U.S. retail sales barely
budged in April and are now down or flat in four of the five past
months.
"The disappearance of consumer spending in early 2015 has now
become even more mysterious, as some of the excuses shopped around
earlier, like bad weather, are looking more stretched with the
passage of time," said Paul Ashworth, chief U.S. economist at
Capital Economics.
Retail sales figures are a key barometer for overall consumer
spending, which accounts for about two-thirds of economic output in
the U.S. The latest disappointments cut against other positive
signs: Consumer confidence rose in April, job creation perked up
and gasoline prices, though climbing, still sit well below year-ago
levels.
Indeed, the flat reading for April's retail sales was driven
partly by falling gasoline purchases. That savings at the pump
should help consumers elsewhere. But instead of spending the
windfall, households appear to be paying down debt and building up
bank accounts. The nation's personal saving rate in the first
quarter of the year was the highest since the end of 2012.
Retailers have noticed an array of factors holding back business
this year, from bad weather to an apparent reluctance to splash out
on big purchases. But many still expect sales to pick up at least a
little.
At Cravens & Lewis Jewelers in Georgetown, Ky., co-owner
John Lewis said a mix of winter snow and spring floods hurt
business earlier in the year. Sales have since bounced back and are
expected to grow 8% to 10% for the full year. But business still
isn't as good as it was before the recession, with customers more
conservative about using credit and focusing on moderately priced
jewelry.
"People are still very cautious," Mr. Lewis said. "I think a lot
more people are a lot more conscious about spending. We're not
selling the big pieces like we did years ago."
Poor retail sales figures are clouding economic forecasts for
the rest of the year. Gross domestic product, the broadest measure
of economic output, was first estimated by the Commerce Department
last month as climbing an annualized 0.2% in the first quarter.
With additional data, forecasters say the economy likely contracted
in the first quarter of the year. Some economists are now looking
at a weaker-than-expected second quarter, too.
J.P. Morgan Chase economists lowered their second-quarter
estimate to 2% annualized growth from 2.5% after Wednesday's
release of retail data. Morgan Stanley left its estimate untouched
at a fairly weak 1.5%.
And the Federal Reserve Bank of Atlanta's GDP tracker has
second-quarter GDP climbing at a 0.7% pace, following an estimated
first-quarter contraction of 0.8%. That would mean the economy
contracted in the first half of the year, though new data could
quickly change that picture. For instance, retail sales only
account for a slice of consumer outlays-the bulk goes to services,
where spending has appeared more robust in recent months.
In 2014, a sharp rebound in the economy followed a weak start.
This year, the economy appears slower to bounce back in part
because consumers remain reluctant spenders.
But there's hope that the caution is fading. Jim Craigie,
chairman and CEO of Church & Dwight Co., said that for a time,
it seemed U.S. households were holding on to their gasoline
savings. "My sense is it's starting to ease up a little bit and
they are starting to spend a little bit more money out in the
marketplace," Mr. Craigie told investors last week.
Church & Dwight, which makes packaged goods under brand
names including Arm & Hammer, Trojan and Oxi Clean, has seen
bottom-line results slowly improve from levels a year earlier. "I
don't want to say I'm overly optimistic at this point....I'm still
probably in a yellow light, but I see a little bit more green
creeping in every month," Mr. Craigie said.
Federal Reserve officials last month acknowledged the decline in
consumer spending during the early months of the year but held out
hope it would perk up. "Households' real incomes rose strongly,
partly reflecting earlier declines in energy prices, and consumer
sentiment remains high," central bank officials said after a
two-day policy meeting.
A pickup in consumer spending would give the Fed confidence that
the weak first-quarter economic performance was temporary, rather
than a sign of underlying problems. Other recent economic data
suggests the economy is returning to healthier growth rates.
Employers added 223,000 jobs in April, the Labor Department said
last week, a welcome rebound after March's gain of only 85,000-the
worst monthly performance in almost three years.
Still, though consumers say they feel upbeat, many aren't ready
to return to pre-recession spending habits.
Lenny Longo landed a new job as a restaurant manager in
Ellenton, Fla., earlier this year. The 62-year-old said business at
Anna Maria Oyster Bar has been fantastic and the local economy is
bustling. But the area isn't far removed from the housing bust and
ensuing downturn, which cost Mr. Longo his home in foreclosure.
"I still think that there's a note of caution," Mr. Longo said.
"Once you get hit with a two-by-four you're ducking the second
time."
So he has focused on rebuilding credit, saving money and only
making purchases he can quickly pay off. Now, Mr. Longo and his
wife are ready to buy a new home-inspection is Wednesday and
closing hopefully soon after.
"It's been real good. I'm happy right now," Mr. Longo said. "But
I'm still very careful."
Write to Jeffrey Sparshott at jeffrey.sparshott@wsj.com
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