Wednesday, November 22, 2017
Business

Lower gas prices not enough to lift U.S. economy

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WASHINGTON — Cheaper gas has yet to cause consumers to spend enough on other goods to boost the slumping economy.

Americans barely increased their spending at retail businesses this spring, leading economists to predict slower economic growth in the April-June quarter.

But the news from a spate of government data Thursday wasn't all bad. Consumers spent more in May on cars, appliances and furniture — big purchases that help drive growth. Businesses continued to restock this spring at a healthy pace. And wholesale prices outside of gasoline costs remain stable, which means consumers can expect inflation to stay mild.

If gas prices stay low, Americans are likely to spend more freely this summer on other goods, from autos and furniture to electronics and vacations, that fuel economic growth.

"The continued fall in gasoline prices should support consumption by freeing up cash to be spent on other items," said Paul Dales, senior U.S. economist at Capital Economics.

Retail sales fell 0.2 percent in May and April, the Commerce Department said. It was the first back-to-back decline in two years. But overall sales were pulled down by a 2.2 percent decline in gasoline station sales, reflecting the lower prices. Excluding volatile gas station sales, retail sales grew just 0.1 percent in May.

Consumers reduced spending in May at building-supply stores, such as Home Depot, and general merchandise stores, a category that includes Walmart and Target. Auto sales rose solidly, one of the few positives in the report. Consumers also spent more on electronics, clothing and furniture.

In a separate report, the producer price index, a measure of wholesale prices, dropped 1 percent in May, the Labor Department said. That's the biggest decline since July 2009. It reflected a 9 percent fall in wholesale gas prices.

Modest wholesale inflation reduces pressure on manufacturers and retailers to raise prices. That helps keep consumer prices stable, which boosts buying power and drives growth.

A third report Wednesday showed that businesses restocked at a slightly faster rate in April than March.

When businesses step up restocking, they order more goods. That generally leads to increased factory production and higher growth. But further stockpile growth depends on increased spending by consumers. And economists worry that consumer spending may further weaken if hiring and pay don't pick up.

Workers' average hourly earnings rose just 1.7 percent in the 12 months that ended in May. That was below the pace of inflation during that period.

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