Retail sales dropped 0.5% last month, the first three-month stretch of falling sales since 2008, the Census Bureau said. Sales fell for gasoline because prices dropped, but sales of cars, furniture, building materials and restaurant meals dropped, too. The main culprit is slow job growth, Moody's Analytics economist Scott Hoyt said. "It doesn't matter how deep you dig, you can't find much good news," he said. "Unfortunately, (lower gas prices) have been trumped by the weaker job market."
Consumers are still heavily in debt from the housing bubble and aren't getting raises, economists say. Household debt is still twice as high as a percentage of gross domestic product as it was in 1982, when the U.S. also had a serious recession, Harvard University economist Carmen Reinhart said. Personal income per capita has risen only 0.4% in the first five months of this year, according to the Federal Reserve Bank of St. Louis. Adjusted for inflation, it's still below pre-recession peaks.
"It's the combination of weak jobs and the evidence people get when they open their paychecks that it's not going anywhere," said Joel Naroff, president of Naroff Economic Advisors. "Businesses aren't sharing their profits with workers."
Weak consumer spending is the biggest difference between this recovery and others past, said Reinhart, a historian of past financial crises who popularized the idea that post-crisis recessions last longer than other downturns. And because most consumers have fixed-rate mortgages, even a cut in rates or more quantitative monetary easing by the Federal Reserve does little to help consumers quickly, she said.
"With a fixed mortgage, the only way to get the benefit of lower rates is to refinance," she said.
Retailers are more hopeful, because job and income growth are still positive even though they're sluggish, said Jack Kleinhenz, chief economist of the National Retail Federation. The housing market is also stabilized, he said. Danger signs include a falling savings rate and a May spurt in consumer borrowing, which may be a sign households are having trouble staying on budget, he said.
"I think we're kind of muddling through, waiting to see what might happen," he said.
(Copyright © 2012 USA TODAY)