Sluggish monthly retail sales herald weak second quarter for US economy

The second quarter looks like being the weakest for the US economy this year following sluggish retail sales figures for May, a prospect underlined by a senior US official who said growth could be lower than the first quarter's 1.3 per cent. Sales at US retail outlets barely edged up, rising 0.1 per cent, compared to analysts' expectations of 0.3 per cent.

Retail sales are regarded as a key indicator of overall consumer spending, which drives two-thirds of the US economy, and the softening in pace is likely to encourage the US Federal Reserve to make the sixth rate cut of the year when it meets on June 26th-27th.

However, the figures are "still on the sunny side of zero", as one analyst put it, and if a slump in car sales is taken out of the equation, retail sales are in line with forecasts of 0.3 per cent growth.

The US Commerce Department also issued revised figures showing that April was a more vigorous month for shopping malls and department stores than it had first reported. Retail sales figures for April, which reversed a two-month decline, rose 1.4 per cent rather than 1.1 per cent, mainly due to higher petrol prices.

New car sales that account for one-quarter of monthly retail business dropped 0.7 per cent to $70.68 billion (€83 billion) last month after climbing 2.3 per cent in April. Mr Ian Ruskin, an economist with 4CAST in New York, said the May retail sales figures implied another quarter-percentage point reduction in rates may follow. The market has already factored in a quarter-percentage point cut, analysts say.

Spending will get a boost later in the summer when tax rebate cheques begin to arrive in US homes under the Bush administration's tax cut plan. US Treasury Under-Secretary for International Affairs Mr John Taylor said yesterday he expected the US economy to recover in the third and fourth quarters of this year, with growth reaching 3 per cent by 2002.

He told reporters in Paris, where he was attending an OECD meeting, that growth in the second quarter would remain in a similar range to or slightly below the 1.3 per cent growth posted in the first quarter.