For the first time in eight months, retail sales fell 1.2% to $362.5 billion in May, the Commerce Department said. It was the first decline since September 2009, when retail sales fell 2.3%. Most economists expected sales to increase by approximately 0.2% in May. “The trend as of late has been modest growth, and around the trend of modest growth, you’re going to get some ups and downs,” said Scott Hoyt, a retail economist with Moody’s Economy.com. “That’s clearly what we’re seeing here.”

Building materials and supplies led the sales decline with a 9.3% drop, down significantly from the 6% increase in both March and April. “It was up so much [in March and April] partly related to the appliance incentives administrated by states that were mostly rolled out in March and April and part of it was probably pent up demand after winter weather,” Hoyt said. “But once you work off that pent up demand, you go back to a normal level.”

Gasoline station sales also fell significantly in May, dropping 3.3%. “This has to do with seasonality, since gas prices usually increase at this time of year but were flat or even down last month,” said Hoyt. “When there isn’t an increase in gas prices, this shows up in retail sales.”

The most surprising decrease is motor vehicle and parts sales dropping 1.7% in May, especially since automakers posted large May sales increases earlier this month.

“Excluding the weakness in these three areas — building supplies, gasoline stations and motor vehicles — overall sales would have increased 0.1% in May,” said Hoyt. This is on target to what most economists had predicted.

Total retail sales were up 6.9% over the same period last year.
“The pace of consumer spending growth we saw in the first quarter was too fast and couldn’t be sustained,” Hoyt said. “But if you put this [report] in the context of the last few months, where growth was quite strong, and smooth it all out a bit, we are still consistent with the story of modest spending growth, and this is where we should be.”

The tax incentives expired and the housing market index dropped to 17 in June according to the National Association of Home Builders, the lowest level since March. The tax credits of up to $8,000 expired on April 30, although buyers with signed contracts have until June 30 to complete their purchases. Now, experts anticipate home sales will slow in the second half of this year. In addition, high unemployment and tight mortgage lending continue to keep many buyers on the sidelines.

The drop in activity is “a wake-up call to the fact that the market will struggle to stand on its own two feet without the tax credit,” wrote Paul Dales, an Economist with Capital Economics. “The double-dip in both activity and prices that we have been expecting for some time appears to have begun.”

New homes sales made up about 7 percent of the housing market last year which is down from about 15 percent before the recession. It’s also bad news for the economy. Each new home built creates the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders. The impact is felt across multiple industries, from makers of faucets and dishwashers to lumber yards.

For the fourth consecutive quarter, household net worth increased by 2.1 percent according to the Federal Reserve. The main reason for the increase is the growth of stock portfolios lifting net worth in the first quarter. Since then, Wall Street has slumped again. Net worth is the value of assets such as home, checking accounts and investments minus debts like mortgages and credit cards.

There is still a long way to go to get back to pre-recession highs of $65.9 trillion, even with the first-quarter increase, Americans’ net worth would have to rise an additional 21 percent. It’s likely to be a slow and bumpy ride, analyst say with household wealth likely to return to those levels in 2012.

In the beginning of the recession, household net worth dropped to $48.3 trillion in the first quarter of 2009 while stock holdings and home values tanked. As their net worth shrank, Americans spent less. Now that wealth is gradually growing, Americans are slowly spending more. However, the economic recovery is still fragile and the stock-market is still volatile, so people are not comfortable spending lavishly. They usually do during the early phases of recoveries, but not this time. That’s one reason why the country is seeing only modest economic growth. The sharp decline in the stock market in the last month and a half jeopardizes the improvements people have seen in their financial situations and net worth over the past year.

The Labor Department said that while Nonfarm payrolls increased by 431,000 jobs, private employment, a barometer of underlying labor market strength, only climbed 41,000. This data is well below expectations, but a potential bright spot is that company workforces are being spread thin and companies may have to hire more in order to increase output. “We do not yet have the makings of a double-dip, and we still believe that private sector job creation will gradually improve over the rest of the year,” said Nigel Gault, Chief U.S. Economist at IHS Global Insight in Lexington, Massachusetts.

The Chief Executive of Walmart said the still-weak U.S. labor market is affecting customers even as the company plans to hire more than 500,000 workers in the next five years in the United States and around the globe. “I would not say that I could predict that there will be any decline” in the economy,” Walmart CEO Mike Duke said. “But I still sense a great deal of pressure on the customer base.”

Last month, the Government hired 411,000 workers for the Census, the biggest increase in payrolls since March 2000. It was the fifth monthly increase in employment. The Labor Department report also showed the unemployment rate dropped to 9.7 percent from 9.9 percent in April, although the decrease reflected workers leaving the labor force. Payrolls had been expected to rise 513,000, with the jobless rate dipping to 9.8 percent.

The high jobless rate suggests that the U.S. Federal Reserve will not raise benchmark interest rates anytime soon.
The economy has grown for three straight quarters and the recovery continues on a moderate upward path. Economic growth has been insufficient to bring the 15 million jobless Americans back into the work force, 46 percent have been without a job for six months or more in May. With unemployment still so high, many Americans are relying on the Government to help for basics. In March, a record 40.2 million people were receiving food stamps, the Agricultural Department said on Friday.

The U.S. economy will continue growing slowly, and will not slip back into a recession according to Federal Reserve Board Chairman Ben Bernanke. On Monday, he was interviewed by ABC News. “My best guess is we’ll have a continued recovery [but] it won’t feel terrific,” he said. There have been fears of a double-dip recession in recent weeks as growth has remained very slow.

On Friday, the May employment report was released and showed 41,000 private-sector jobs were created last month, and is being seen as the latest signal that the U.S. economy may be softening again.

Coming into 2010, the big question was whether the economy would “get its own legs” and not have to rely on government fiscal medicine and inventory behavior, Bernanke said.

“So far the news is pretty good,” Bernanke said.

“We’ve seen consumer coming back. We’ve seen firms spending more. There are some signs the private sector is picking up the baton and moving the economy forward,” he said.

Bernanke quickly noted that there were “caveats” to this forecast. Growth was still not fast enough to bring down the high unemployment rate.

In addition, the U.S. banking sector was “not completely healthy,” he said. Banks were still deleveraging and not making as many loans as “we’d like to see,” Bernanke said.

Gas prices are leveling off to a national average price of $2.724 per gallon, according to AAA. This is due to a steep drop in oil prices over the past month. Gas started off at $2.93 per gallon on May 6, after oil reached an 18 month high of $87.15 a barrel. This drop in gas prices will be good for summer traveling, and will hopefully translate into more spending.

Job openings increased in April to 3.1 million, the highest level in 16 months, the Labor Department said. This is the most openings since December 2008, with private employers accounting for the increase. The Labor Department’s report, known as the Job Openings and Labor Turnover Survey, or JOLTS, follows a disappointing employment report Friday that found private employers added only 41,000 jobs in May and temporary census hiring accounted for 411,000 jobs.

The job opening increase “makes you a little more upbeat about the labor market,” said Michael Feroli, Chief U.S. Economist at JPMorgan Chase. Job openings have risen by approximately 740,000 since reaching the bottom in July 2009 at 2.3 million. However, they remain far below pre-recession levels of about 4.5 million openings per month.

The competition for jobs remains tough with 5 unemployed people, on average, for each job opening in April. That is down from 5.4 in the previous month, but well above pre-recession levels of 1.8 jobless workers per opening. The biggest increases in jobs were in the professional and business services, leisure and hospitality and education and health services.

The report also found the number of people who quit their jobs topped layoffs for the third straight month. This is a sign of confidence in the employment market as people are more willing to leave if they believe they can find a new job.

Other surveys also show that companies will increase hiring, though at a slow pace. Staffing company Manpower Inc. said Tuesday that its quarterly employment outlook found more employers are planning to hire in the July-to-September quarter than the preceding three months.

Despite widely touted news of an economic recovery the 15.3 million unemployed Americans face scant hope of an end to their troubles any time soon. Moreover, higher than expected new unemployment claims indicate that layoffs continue to contribute to the predicament. Many Americans see very little evidence of a recovery in their personal experience.

While those already unemployed face abnormally intense competition for those jobs available, those who remain unemployed are watching the contents of their savings decline. More people every day face the impending reality of foreclosure while only those with irreproachable credit have any hope of obtaining a new loan.

“We’re out of recession, but the recovery is not going to bring a whole lot of smiles,” said Joel Naroff, of Naroff Economic Advisors. New Commerce Department estimates showed the economy growing at an annual rate of only 3 percent. This estimate, based on new, more complete information was weaker that the initial estimate of 3.2 percent issued last month.

Consumer spending was lower than initially estimated as was business spending on both equipment and software. The nation’s trade deficit continues as a drag on the economy.

The US Labor Department reported that the number of newly laid off workers filing claims for unemployment benefits fell slightly to 460,000 last week, a level higher than at the start of the year. Economists had hoped that by this point in the recovery new claims would be in the 400,000 to 425,000 range, signaling expanding job growth to come. While a net 290,000 new jobs were added in April, far stronger job creation figures are required in order to reduce the current 9.9 percent unemployment rate.

Wall Street paid little attention to the dismal domestic economic news to focus on China, where stocks surged following Beijing’s announcement that it intends to maintain support for the Euro. Based partially on this news the Dow Jones industrial average climbed nearly 200 points in afternoon trading.

In normal times, an expansion rate of 3 percent would be considered strong for the U.S. economy, but a recovery from such a severe recession would require at least double the current rate in order to have an impact on the jobless rate. Economists estimate that a growth rate of 3 percent is required just to keep up with increases in US population, and a sustained growth rate of 5 percent would be needed to decrease unemployment by 1 percent. Economists have expressed little hope of seeing growth in the required range and in fact growth in the first quarter of 2010 was lower than the 5.6 percent rate shown in the final quarter of 2009.

The National Association for Business Economics foresees continued slow economic quarterly growth hovering around the 3 percent range throughout the remainder of 2010. Should this forecast hold true it is unlikely that employers will feel enough confidence to hire additional personnel and equally unlikely that consumers will be willing to make use of additional credit.

US businesses also face additional concerns related to the European debt crisis. Manufacturers expect to see lowered demand for US produced goods which could further impact domestic hiring. Housing and commercial real-estate continue to be viewed as major areas of weakness and builders cut spending in each by double digits in the first quarter of this year.

Web research firm ComScore announced that online retail sales hit $34 billion in the first three months of 2010, a 10 percent increase from last year and the first double-digit jump in nearly two years. According to the ComScore report, online retail sales now represent 8 percent of all retail sales measured by the U.S. Department of Commerce. The online jump in the first quarter was due largely to shoppers in households earning $100,000 or more who increased their online spending by 14 percent from last year, the study said.

The Bank of Canada raised its interest rate by a quarter percentage point to .50% making them the first Group of Seven nation to raise rates since the recession. They said any further increase would depend on the condition of the economy. This was not unexpected as most economists predicted this increase when the Canadian economy grew 6.1 percent in the first quarter of this year. Canada fared better than most countries. They did not have any bank failures or mortgage meltdowns and are rebounding quickly.

As retail chains gear up to report Comparative Store sales on Thursday, many analysts predict May’s numbers to be up 3.8 percent, compared to a 4.8 percent decrease last year, according to Thomson Reuters. Standard & Poor’s expects there to be a 3.4 percent increase. The International Council of Shopping Centers (ICSC) cut back its May predictions, now expecting an increase of 2 to 2.5 percent, down from their previous forecast of 3.5 percent. They cited slower traffic and less spending because of the colder weather during the month.

U.S. consumers are starting to open the purse strings for nonessential items such as clothes and furniture after focusing on the basics during the recession, but shoppers are being very selective about where and when they spend. Overall consumer sentiment has remained the same since February. “Overall, we’re still going to see improvements for all of retail, but the volatility just shows we’re not out of the woods yet,” said Linda Tsai, specialty retail apparel senior analyst for research and trading firm MKM Partners. “I don’t think it signals doom, but right now it’s just a little bit slower,” she added. “We’re still seeing dips during non-peak periods.”

S&P apparel retail analyst Marie Driscoll agreed that consumers are still very wary of the recovery. “It looks like the economy is improving in fits and starts,” Driscoll said. “A real thing that could derail consumer spending is too much volatility in the stock market. Other than that, it seems to be leveling out and increasing modestly.”

With the Memorial Day holiday on the last weekend of May, it pushed more sales into June, and kept May at more single digit sales, said analysts. Also, cooler weather throughout the nation hurt sales of summer wear.

June looks like a great month with “glorious” weather expected everywhere but the Southeast, said Scott Bernhardt, Chief Operating Officer for Planalytics, which provides weather data for businesses. “June is going to be off the charts good for most of North America,” he said. “It will feel like summer. People will spend like summer. It’s a very good thing for the economy.”