Consumers feel pinch of gasoline costs in April

WASHINGTON Thu May 12, 2011 3:41pm EDT

An employee changes gas prices on a sign at a Sunoco station in Alexandria, Virginia, April 12, 2011. REUTERS/Molly Riley

An employee changes gas prices on a sign at a Sunoco station in Alexandria, Virginia, April 12, 2011.

Credit: Reuters/Molly Riley

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WASHINGTON (Reuters) - The economy struggled to gain momentum early in the second quarter, with retail sales posting their smallest rise in nine months in April and wholesale prices increasing more than expected.

Other data on Thursday showed new claims for unemployment benefits fell 44,000 last week to 434,000 as one-time factors that had led to a spike in the prior week reversed. But the level of claims still suggested hiring was softening.

"There are still headwinds for the economy stemming from the high gasoline and food prices for the consumer as well as input prices for producers," said Omair Sharif, an economist at RBS in Stamford, Connecticut. "Given the high input costs, it looks like firms are scaling back on their hiring plans."

Retail sales increased 0.5 percent after an upwardly revised 0.9 percent gain in March as receipts at gasoline stations and grocery stores rose strongly, the Commerce Department said. Economists had expected a 0.6 percent rise.

Excluding gasoline, retail sales rose a tepid 0.2 percent.

The slim rise suggested the economy could struggle to meet economists' expectations for growth of at least a 3 percent annual rate in the second quarter. The economy expanded at a subdued 1.8 percent pace in the January-March period, according to the government's initial estimate last month.

While the tenth straight monthly rise in sales did highlight consumer resilience to lofty food and gasoline prices, households started to trim spending on big-ticket items such as furniture and electronics and appliances.

The Commerce Department's chief economist, Mark Doms, said consumers spent about $8 billion more at gasoline stations in April than they had a year ago. Gasoline prices rose 24 cents, or 6.6 percent, to $3.85 a gallon in April from March.

ENERGY, FOOD RAISE WHOLESALE PRICES

High energy and food costs lifted the prices farms, factories and refineries received in April.

The Labor Department said its producer price index rose 0.8 percent after a 0.7 percent increase in March, a touch above economists' expectations for a 0.6 percent gain.

Excluding food and energy, producer prices rose 0.3 percent for a second straight month, suggesting building inflation and profit pressures.

The retail data implied consumer spending, which accounts for 70 percent of U.S. economic activity, got off to slow start in the second quarter with household budgets stretched by high food and energy prices.

A Reuters survey published on Thursday showed economists trimmed their 2011 annual average estimate for U.S. economic growth to 2.7 percent from 2.9 percent in April.

Another survey showed U.S. shoppers are making fewer shopping trips, eating out less, and skimping even on groceries to rein in household budgets amid rising gasoline prices.

About a third of Americans surveyed by America's Research Group said they were making fewer trips to stores due to higher gas prices, with about 53 percent of participants also cutting back on small luxuries like sit-down dining.

Stocks on Wall Street rose as commodity prices rebounded, while longer-dated Treasury debt prices fell. The dollar was down against a basket of currencies.

High price increases helped Kraft Foods Inc post better-than-expected first-quarter results, while rising input costs hurt earnings at Gap Inc.

But relief for consumers might be around the corner. U.S. gasoline futures registered their sharpest daily drop since September 2008 on Wednesday and slipped further on Thursday, pointing to a fall in prices at the pump.

President Barack Obama urged businesses to "step up" and hire workers, noting that high gasoline prices were one of the "headwinds" dragging on the economy.

A sharp slowing in consumer spending growth put the brakes on the economy in the first quarter, but upward revisions to March sales figures suggested the economy may have moved ahead faster than the 1.8 percent pace estimated by the government.

The potential for an upward revision in first quarter GDP was supported by another report on Thursday showing strong increases in business sales and inventories in March. Sales rose 2.2 percent, while inventories were up 1 percent.

Details of the retail sales report were generally weak.

Receipts at auto dealerships, clothing and building materials and garden equipment stores rose only modestly, while sales at sporting goods, hobby, book and music stores posted their largest decline since November 2009.

The soft data was at odds with a government report on Friday that showed a 57,100 jump in retail payrolls in April, the most since 2000.

Receipts at gasoline stations, which accounted for about 10.5 percent of overall retail sales in April, rose 2.7 percent. Sales at grocery stores increase 1.5 percent.

(Additional reporting by Doug Palmer; Editing by Neil Stempleman)

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Comments (15)
Harry079 wrote:
Here we go again!

The jobless claims number for last week is a dismal 435,000. Counting the really bad prior week of 478,000 the total for just the last two weeks is over 900,000.

I wonder who these people are that are getting laid off. I know they are not McDonald’s workers they just hired 59,000. My guess it’s full time above average pay workers who probably had benefits and some sort of retirement package.

Here in Michigan it’s teachers, police, fire, maintenence, libraries, parks and the like.

Since 2008 home values in my area have dropped 50% and are still falling.

This country is dying a slow death while our government plays shell games and Congress does nothing to address the real problems.

May 12, 2011 9:19am EDT  --  Report as abuse
KimoLee wrote:
In the white collar world “Luxury” workers are the first to go (i.e. janitorial services get cut) and those “extra” office workers. Then they start letting go the low level relatively inexperienced “regular” staff. Next the less productive experienced staff get cut and the work load rises for the remainder. Mind you, “everyone” has already taken a pay cut and prices are continuing to rise. If that doesn’t stop the bleeding, they start letting go the weaker, well educated, experienced money makers because there arent’ enough customers to feed everyone.

I’m hanging on, working hard, not taking any vacation, etc., but still there is no security. And I work for a very experienced firm with a good reputation. We’re watching the competition fail, but not seeing an uptick in business. Hence, there are a lot of well educated white collar workers out of work now. Companies “thought” the storm would pass, but it has not.

This has been getting progressively worse for four years. It really irritates me that the media falsely reported recovery, etc. That does not help anything. What we “see, hear, and feel” is reality. If it walks like a duck, quacks like a duck, . . . It IS a duck. Destroying trust isn’t a good way to build a relationship.

May 12, 2011 10:00am EDT  --  Report as abuse
neilc23 wrote:
According to the federal government’s Bureau of Labor Statistics, ther were 6,910,000 fewer Americans working in the private-sector than there were were 41 months ago. It’s amazing that retail sales haven’t totally collapses.

It is unfortunate that politicians got so excited by the 244,000 employment increase. Why unfortunate? Because as a whole, Americans are either too dumb, lazy, uninterested or partisan to look at the facts.

The old expression the comes to mind, is: “Let us not be encumbered by the mere presence of facts”.

May 12, 2011 10:26am EDT  --  Report as abuse
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