WASHINGTON — Frugal consumers made for anemic retail sales in March, and jobless claims hit a 5-year high, spurring new talk of recession. Wholesale prices fell for the first time in seven months.
With spending by consumers accounting for two-thirds of all economic activity, the fact that they tightened their belts last month made economists worry about whether the economy might stall or slip into reverse in the current April-June quarter.
After being flat in February, sales at the nation’s retailers fell in March by a bigger-than-expected 0.2 percent as people cut back spending on cars, building supplies, furniture, food and clothes, the Commerce Department said. Sales at gas stations also fell, reflecting lower prices at the pump. Retail figures aren’t adjusted for inflation.
In another report, the nation’s largest retailers said their March sales fell sharply below expectations.
Department stores, particularly Dillard’s Inc. and Saks Inc., were hardest hit, but even usually strong performers like discounters Wal-Mart Stores Inc., Kohl’s Corp. and Target Corp. suffered from the economic malaise.
“Consumers had been the principal difference between an economy that is struggling and an economy that is in a recession,” said Mark Zandi, chief economist at Economy.com, a consulting firm. “While they haven’t packed it in yet, they are retrenching, and if that continues the economy is going to unravel.”
On Wall Street, investors gave a positive spin to the batch of disquieting economic news, bidding stocks solidly higher amid rising hopes for another interest rate cut. The Dow Jones industrial average gained 113.47 points to close at 10,126.94. The Nasdaq finished up 62.48 points at 1,961.43, the first time since early September that the index has had a four-day winning streak.
Stock market volatility, rising unemployment and worries about the economy are all factors that make people feel less inclined to spend, economists said.
Most economists believe, however, that the economy still managed to grow during the first three months of 2001, but probably not by much.
Given that the economy was booming in the first half of last year, the swiftness of the slowdown has jolted many Americans. “People see a bear market, layoff announcements, earnings warnings. These are the most difficult economic times people have generally seen in at least 10 years,” said Stuart Hoffman, chief economist at PNC Financial Services Group.
Another report provided fresh evidence of how the weak economy is taking its toll on the labor market.
The Labor Department said new claims for state unemployment insurance rose last week by 9,000 to a seasonally adjusted 392,000, the highest level since March 30, 1996.
“Labor market conditions are key to the consumer outlook, and they continue to deteriorate,” said Merrill Lynch economist Gerald Cohen.
Government officials said layoffs in the automobile industry, because of production cuts in the face of slumping demand, accounted for part of the unexpected rise.
With employers’ appetite for workers waning, economists expect the nation’s unemployment rate, now at 4.3 percent, to rise to 4.5 percent or possibly higher in the coming months.
Trying to stave off recession, the Federal Reserve slashed interest rates three times this year, totaling 1.5 percentage points. Economists expect another rate reduction of half a point either before or at the Fed’s next scheduled meeting May 15.
Given that inflation remains tame, the central bank has plenty of room to lower interest rates aggressively to rejuvenate economic growth.
In a fourth report, the Labor Department said its Producer Price Index, which measures inflation pressures before they reach store shelves, edged down by 0.1 percent last month. Lower prices for energy and computers outweighed higher prices for food.
It provided a brighter reading on wholesale inflation than many analysts expected and marked the first drop in the PPI since August. In February, wholesale prices rose a tiny 0.1 percent.
Excluding volatile energy and food sectors, which can swing widely from month to month, wholesale prices edged up an expected 0.1 percent in March, after falling by 0.3 percent the prior month.
Energy prices, which rose 1.4 percent in February, fell 2.6 percent in March, the best showing since April 2000. Costs for residential natural gas declined by a record 4 percent, surpassing the previous all-time drop of 3.8 percent in April 1997.
After peaking in December, natural gas prices have eased, and economists expect prices to continue to moderate or fall in coming months. That provides little comfort to consumers, who have been socked with huge bills. Costs remain much higher than they were in the winter of 1999.
Prices for computers fell 5.9 percent in March, the second-largest decline on record. But food prices rose 1.1 percent, the biggest increase since April.
In the retail report, car sales fell by 0.8 percent; building supply sales were down 1.2 percent; clothing and furniture sales each declined by 0.7 percent; and gasoline station sales were down 2 percent.
On the Net:
Report sales report: http://www.census.gov/svsd/www/retail.html
Jobless claims: http://www.ows.doleta.gov/news/news.asp
PPI report: http://www.bls.gov/