June 13, 2001

High Gas Prices Skew Retail Sales Data

It is clear from May's retail sales report that consumers have curbed their spending, and are putting more of their paycheck toward necessities rather than luxury items. Without sky-high gas prices, retail sales would not have shown even the tiny 0.1% increase they did last month. Gasoline prices gained a whopping 1.4%. Auto sales, on the other hand, plunged 0.7%, clothing store sales fell 1.0%, and building materials and garden supply sales fell by 0.6%.

High gasoline prices and increasing layoffs seem to have tackled consumer spending and wrestled it to the ground. In the coming months, we expect the slowdown in consumer spending to get even worse. We have told you before why President Bush's paltry $300 tax rebate and more interest rate cuts won't make a difference. And, we don't see energy prices in the US falling over the summer months. Plus, businesses will announce even more layoffs as they struggle to balance out dismal earnings.

The outlook for consumer spending, which accounts for two-thirds of economic activity, doesn't look promising. And the likelihood of recession just got higher.

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