US retail sales staged their sharpest fall in nearly a year last month while producer prices posted their biggest decline in nearly two, according to government data yesterday that may ease inflation fears.
Retail sales dropped an surprisingly large 0.5 per cent as Americans bought fewer cars and cut back on clothing purchases, the Commerce Department said.
A separate report showed US producer prices plunged a sharper-than-expected 0.6 per cent last month on tumbling energy prices and lower food costs.
Bond prices rallied as traders took the reports as a sign the Federal Reserve would stay on a gradual course of interest-rate rises.
"These numbers look entirely consistent with the Federal Reserve going 25 basis points per meeting and staying the course," said Nick Bennenbroek, a senior currency strategist at Brown Brothers Harriman in New York.
The overall retail sales drop was the largest since a matching fall last June, the Commerce Department said, and exceeded the 0.2 per cent fall forecast by analysts. It was also the first outright decline since last August and came on the heels of an upwardly revised 1.5 per cent gain in April.
Excluding autos, which can swing widely from month to month, retail sales dropped 0.2 per cent after a 1.4 per cent jump in April. It was the first dip ex-autos since April of last year.
While the Fed has expressed optimism that an energy price-led soft stretch earlier this year will prove fleeting, the weak retail sales number may be a sign consumer spending - which fuels about two-thirds of US economic output - is faltering.
However, separate reports on chain-store sales showed a pick-up in shopping last week. On the price front, the Labour Department said prices were surprisingly tame even outside food and energy.
Without those volatile sectors, the producer price index, a gauge of prices received by farms, factories and refineries, rose a mild 0.1 per cent.
The report was likely to further beat back inflation concerns in financial markets. Wall Street economists had expected overall producer prices to slip just 0.2 per cent, with core prices moving up by 0.2 per cent.
The department said energy prices plunged 3.5 per cent, the biggest drop since April 2003. Gasoline prices dropped 9.9 per cent, heating oil costs fell 7.8 per cent and the cost of liquefied petroleum gas was off 9.8 per cent.
Producer prices have followed an uneven upward path as energy costs gyrate with the cost of crude oil. Over the past 12 months, energy prices have risen 10.2 per cent, a driving force behind the 3.5 per cent rise in producer prices.
Crude oil prices, which hit a record high above $58 a barrel in early April, closed as low as $46.80 a barrel last month. But they have since moved back up above $55, suggesting some of May's producer-price relief could prove short-lived.
A 0.3 per cent drop in food prices, the first decline since January, contributed to the overall drop in producer prices, which was the biggest decline since April 2003.
The mild increase in core prices, which left the year-over-year increase steady at 2.6 per cent, reflected a 0.2 per cent slide in car prices, a 0.9 per cent drop in the cost of light trucks and SUVs and a 4.8 per cent computer prices fall.