The Census Bureau stated that retail sales fell 0.2 percent in May, its first decline since June 2010. The largest decliner was motor vehicle and parts sales, which dropped 2.9 percent from the previous month. Excluding autos, retail sales rose 0.3 percent. Even with these declines, however, it is important to note that retail sales were up 7.7 percent since May 2010, with auto sales up 5.4 percent over the past year.
Consumers continue to be pinched by rising prices. (Note that the consumer price index data for May will be released tomorrow.) As a result, the weakness in spending went beyond automobiles. Other sectors with declining sales in May were electronics and appliances (down 1.3 percent), furniture and home furnishings (down 0.7 percent), food and beverages (down 0.5 percent), sporting goods and hobbies (down 0.4 percent), and general merchandisers (down 0.1 percent).
Bucking this trend, though, was strong growth in sales from nonstore retailers and building supply stores (both up 1.2 percent). Reflecting upward movement in energy prices, gasoline stations experienced a 0.3 percent increase in sales in May and a 22.3 percent rise year-over-year.
A second report released today shows that small businesses remain pessimistic about the economy – definitely not a good sign. The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index fell from 91.2 in April to 90.9 in May.
This was the third consecutive month of declines, with the index standing at 94.5 in February. Figures under 100 usually indicate weakness in the small business sector, and respondents appear to be hesitant to expand their businesses, hire new workers, and invest in new capital. The top concern remains poor sales, but perhaps reflecting inflationary pressures, 31 percent of respondents indicated the need to raise prices.
Overall, these two economic indicators reinforce the notion that the economy has weakened somewhat in the second quarter of 2011. Rising energy, food, and raw material prices continue to take their toll, but there are also other headwinds, both temporary and otherwise, which are serving as a drag on the economy. The NFIB survey is more pessimistic than other surveys, including ours, and there I remain cautiously optimistic about manufacturing output in the second half of 2011.
Yet, these numbers are enough to remind us that economic growth remains tenuous, and for the manufacturing sector to continue to grow, we need to have the right economic and policy environment.
Chad Moutray is chief economist, National Association of Manufacturers.