WASHINGTON - Americans are pulling back on their spending, the government reported Friday - and a continuation of that pattern could slow the economic recovery.
Although May's sharp drop in retail sales points to still-wary shoppers, analysts cautioned against overreacting. They said it might signal a return to modest growth in consumer spending after two unusually strong months fueled by tax refunds, rebates for energy-efficient appliances, and higher gas prices.
The 1.2 percent plunge in retail sales last month compared with April was the largest drop in eight months. But excluding three of the most volatile sectors - autos, building materials, and gas-station sales - retail sales actually rose one-tenth of a percentage point in May.
Still, American households still face near-double-digit unemployment, and private employers are not hiring fast enough to bring that number down. Anxiety has gripped the stock market, partly because of the European debt crisis.
Any sustained pullback by shoppers could threaten the recovery because consumer spending accounts for 70 percent of economic activity.
The overall economy, as measured by the gross domestic product, grew at an annual rate of 3 percent in the first three months of this year. Much of that resulted from a 3.5 percent expansion in consumer spending - the best showing for this category in three years.
Some economists cautioned that estimates of growth for the current quarter might have to be scaled back.
May's sales figures are "a reminder that households are not going to be the engine of growth for some time," said Paul Dales, U.S. economist for Capital Economics.
The decline in May retail sales was the largest since sales fell 2.2 percent in September. The government did revise up slightly the April performance to show a gain of 0.6 percent for the month, instead of the originally reported 0.4 percent increase.
Percentage change in sales in May from April.
Category % change
books, music +0.4
Total U.S. retail sales -1.2
Department stores -1.8
garden supplies -9.3
SOURCE: Census Bureau