By Bob Willis June 11 (Bloomberg) -- Sales at U.S. retailers unexpectedly dropped in May, signaling consumers boosted savings as employment slowed and stocks fell. Purchases decreased 1.2 percent, the biggest drop since September 2009, following a 0.6 percent April gain that was larger than previously estimated, Commerce Department figures showed today in Washington. Demand plunged at building-material stores, reflecting the end of a government appliance rebate, and sales fell at auto dealers, in contrast to industry figures which showed a gain. Companies reined in hiring last month, making it likely households will keep a lid on spending, which accounts for about 70 percent of the economy. Discounters Target Corp. and TJX Cos. were among merchants reporting gains in May sales, indicating households are looking for bargains to stretch out their paychecks. “We are not expecting particularly strong consumer spending growth for the remainder of this year,” Neil Dutta, an economist at BofA Merrill Lynch Global Research, said in a June 4 note to clients. “Consumer spending is beginning to lag income growth.” Retail sales were projected to increase 0.2 percent, according to the median estimate of 76 economists in a Bloomberg survey. Forecasts ranged from a decline of 0.7 percent to a gain of 1 percent. The decrease in demand wasn’t broad-based, with five of 13 major categories showing decreases last month, led by a 9.3 percent plunge at building-material stores. Building Materials The decrease at building-material stores followed an 8.4 percent jump in April and a gain in March that may have reflected a surge in appliance sales propelled by a provision of the government’s stimulus package last year that provided rebates for purchases of more energy-efficient products. Purchases of automobiles dropped 1.7 percent last month, counter to industry figures. General Motors Co. and Ford Motor Co. posted U.S. sales increases in May that topped analysts’ estimates as higher consumer confidence and inexpensive gasoline spurred customers to buy more sport utility vehicles. “We’re ramping up production to meet continued strong demand for all of our launch vehicles as well as other products,” Stephen Carlisle, vice president for U.S. sales at GM, said on a teleconference June 2. Spending also decreased 3.3 percent at service stations, 1.3 percent at clothing stores and 1.1 percent at general merchandise stores, which was the biggest drop since December 2008. Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales increased 0.1 percent after a 0.2 percent April decrease.. One reason why Americans are slowing the pace of spending may be that the labor-market recovery is showing signs of slowing. Companies added 41,000 workers to payrolls in May, the fewest in four months and down from a 218,000 increase in April, the Labor Department reported last week. Nonetheless, employers boosted hours and average earnings, signaling workers pocketed the gains in incomes to either pay down debt or boost savings last month. The increase in May sales was less broad-based than in prior months. Purchases at 30 chains rose 2.7 percent from a year earlier, less than a 2.9 percent projected gain, Retail Metrics said last week. Consumers may be seeking discounts as unemployment hovers near 10 percent and the sovereign-debt crisis in Europe hurts stocks. Sales at Target, the second largest U.S. discount retailer, rose 1.3 percent in stores open at least a year from a year earlier. “Comparable-store sales were somewhat below our expectation,” said Gregg Steinhafel, chief executive officer of Target, in a statement May 19. “Our recent experience reinforces our belief that we will continue to experience volatility in the pace of economic recovery.” The debt crisis in Europe raises the risk that tumbling stock prices may give households another reason to rein in spending. Shares have been pummeled since the crisis intensified, with the Standard & Poor’s 500 Index dropping 11 percent since reaching a 19-month high on April 23. Consumer spending paused in April after increasing for the prior six months, the government reported on May 28. Economists surveyed by Bloomberg this month forecast purchases to increase 2.5 percent in 2010. Purchases declined in 2009 and 2008, the first back-to-back decrease since the 1930s. Gross domestic product grew at a 3 percent annual rate in the first quarter after expanding at a 5.6 percent pace in the last three months of 2009, figures from the Commerce Department showed last month. Household spending last quarter climbed at the fastest pace in three years. To contact the reporter responsible for this story: Bob Willis in Washington bwillis@bloomberg.net

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