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Cautious consumers could see lower prices ahead

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Associated Press
June 14, 2011
— Consumers are spending cautiously in the face of still-high gasoline and grocery-store prices, slowing economic growth.

But some relief could be on the way: Wholesale food prices dropped last month by the most in a year. And motorists are likely to face lower gasoline prices this summer.


Retail sales fell 0.2 percent in May, the Commerce Department said Tuesday. The first decline in nearly a year was mostly because Americans purchased fewer cars.


Auto sales dropped 2.9 percent, the biggest decline in 15 months. Buyers received fewer incentives and dealers ran short on popular fuel-efficient models. The natural disasters in Japan disrupted shipments of cars and component parts to the United States.


Excluding the drop in car sales, retail sales rose 0.3 percent. That seemed to encourage investors, who were expecting more broad-based weakness because of the higher gas prices.


The Dow Jones industrial average rose 130 points. Broader indexes also increased.


"The decline in headline retail sales during May can be chalked up to slumping auto sales," said Alistair Bentley, an economist at TD Economics. "This was to be expected following the sharp rise in gas prices and the tsunami in Japan, and thus should not be interpreted as a dramatic swing in consumer sentiment.


There were other signs that the economy could strengthen in the second half of the year.


Cheaper prices may be coming to grocery stores and gas stations soon.


Food costs at the wholesale level fell by the most in a year, according to a Labor report on producer prices. Fruit and vegetable prices led the declines. Tomatoes plummeted 47.2 percent, the most since last June. Spinach prices dropped 48.4 percent and watermelons fell 73.7 percent, the most on record.


Gas prices at the wholesale level rose by the smallest amount in eight months. Those prices are likely to fall further in the months to come.


Consumers had been paying an average of nearly $4.00 for a gallon of gas in early May. On Monday, the national average was $3.70 per gallon, according to AAA. Still, that's a dollar more than what consumers paid a year ago.


Higher gas prices have left consumers with less to spend on discretionary goods. Analysts hope that the economy will regain momentum in the second half of this year if gasoline prices fall further.


A majority of the nation's largest companies appear to be optimistic, according to a new survey. The Business Roundtable, which represents CEOs for the 200 biggest U.S. companies, said 51 percent of chief executives plan to step up hiring in the second half of the year. That's nearly in line with last quarter's 52 percent, which was the highest percentage since the trade group began polling its members in 2002.


The survey began in mid-May and ended on June 3, the day the government released a May jobs report, which showed a steep pullback in hiring by employers. The unemployment rate rose to 9.1 percent.


The retail sales report did show other areas of weakness in the economy. Sales at department stores and big general merchandise stores such as Wal-Mart and Target edged down 0.1 percent in May. Many of the nation's big retail chains reported shoppers pulled back on such as clothing and home goods.


Sales were also down at furniture stores and electronics and appliance stores, declines that probably reflected the continued weakness in the housing market.


Economists surveyed by The Associated Press now believe the economy will show only a modest growth pickup in the current April-June quarter. They forecast growth at an annual rate of 2.3 percent, which would be only a slight improvement from the lackluster 1.8 percent growth in the January-March quarter.



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