Wednesday, May 13, 2009

Retail sales drop unexpectedly in April, raising recovery doubts

Macroeconomic policy attempts to manage the economy by affecting overall spending on newly produced goods and services (which economists call "aggregate demand").  The largest component of aggregate demand (AD) is consumption (C).  Retail sales are the primary  component of consumer spending.  Thus a decline in retail sales indicates a decrease in aggregate demand.  The primary cause of recessions is insufficient overall spending.  Thus, the news that retail sales are declining indicates the recovery from the recession may not be imminent.

May 13 (Bloomberg) -- Retail sales in the U.S. unexpectedly dropped in April for a second month, indicating that rising unemployment is prompting consumers to conserve cash.

The 0.4 percent decrease followed a revised 1.3 percent drop in March that was larger than previously estimated, the Commerce Department said today in Washington. Other reports showed companies continued to cut stockpiles as demand slowed, and climbing oil costs pushed up prices for imported goods.

Fewer jobs, falling home values and the biggest loss of household wealth on record may limit consumers’ ability to spend for years, analysts said. Stocks dropped for a third day as the reports indicated any recovery from the worst recession in at least half a century is likely to be subdued.

“It looks like consumers are losing momentum heading into the second quarter and that is a very worrisome development,” said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. “They have very significant headwinds and number one among them is that the labor market is far from turning the corner.”

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