US ECONOMY: Retail spending in the United States fell unexpectedly in May, the US Commerce Department reported yesterday.
The fall of 0.9 per cent was enough to send the volatile Dow Jones Industrial Index into a triple-digit freefall at the opening.
Stocks rose sharply again as investors snapped up bargains, but fell in afternoon trading as reduced outlooks for the financial sector raised more questions about the US economic recovery.
The pull-back by consumers also indicates that the economic recovery in the United States remains tenuous.
It complements a report from the Federal Reserve in its Beige Book on Wednesday that the economy was experiencing "modest but uneven growth".
Economists say this means the Federal Reserve is unlikely soon to increase short-term interest rates - currently at a four-decade low of 1.75 per cent - especially as inflation remains around zero.
Mr Brian Wesbury, chief economist for the Joint Economic Committee of Congress, who forecast in April that rates could be increased in June because of economic strength, said yesterday: "We concur. The Fed and markets are not ready for a tightening, but we also believe that the economy is much stronger than the May retail data suggest."
Steady spending by US consumers, who drive two-thirds of the world's biggest economy, kept a fully fledged recession at bay last year. Any sign that consumers are less ready to flash their credit cards is usually enough to unsettle the markets.
The fall in retail sales by 0.9 per cent to $297 billion (€314 billion) in May was the biggest since a 2.6 per cent slide in November, with consumers buying fewer automobiles or articles of clothing. Economists had predicted a lesser drop of 0.4 per cent.
At the same time, falling oil prices brought about the biggest decline in wholesale prices in six months where economists had predicted a slight increase.
The May decline was due in large part to a 2.3 per cent drop in energy costs, which had risen sharply the month before.
World oil prices fell in May due to an increase in global output and sluggish demand.
Petrol and heating oil prices fell sharply.
