US retail spending boom wanes

Shoppers are credited with saving the US from a worse downturn

Americans' love affair with shopping, widely credited with saving the country from a longstanding recession, has waned, reports have indicated.

While retail sales rose 0.2% last month, official figures said, Wall Street had expected a 0.4% increase.

Traditionally people talk about a soft landing - I think this is the soft take-off

John Silvia, Wachovia Securities

And a widely watched report from the University of Michigan has shown a surprise fall in consumer optimism.

UoM researchers blamed the decline on a sluggish stock market, a slight rise in US unemployment, and the ongoing unrest in the Middle East.

Interest rate implications

The data, and a third report showing a modest increase in wholesale prices, were taken by analysts as evidence that the US economy is not recovering as quickly as had been thought from the winter's recession.

"The data show the recovery is in progress, but it's very tentative and there's no inflation," said Carol Stone, deputy chief economist with Nomura Securities International in New York.

The dearth of inflation raised hopes that the Federal Reserve, the US central bank, would not raise interest rates as quickly as had been feared.

"This adds weight to our argument that it will be later in the year, maybe September or as late as November, before the Federal Reserve needs to consider tightening interest rates," Ms Stone added.

John Silvia, at Wachovia Securities said: "This is just not fast enough for the Fed to get all that upset with respect to an economic boom.

"It is a recovery but it is a recovery within measure.

"Traditionally people talk about a soft landing - I think this is the soft take-off."

'Back to 2000'

The March retail sales figure was held back by slow trade at car showrooms, which had in previous months enjoyed bumper takings thanks to a spate of special offers and low-cost financing packages.

Excluding auto figures, the March sales increase came to 0.4%, the Commerce Department report showed.

The producer price inflation report showed that while wholesale inflation overall hit 1.0% in March, the core rate, excluding energy and food costs, was contained at 0.1%.

"There is some relief in producer prices that the core rate was low," Ms Stone said.

"It's like we're back in 2000 - apart from energy, there's no inflation."

The University of Michigan report showed a consumer confidence index rating of 94.4 this month, compared with a 95.7 reading in March.

On Wall Street, the Dow Jones industrial average closed up 14.74 points at 10,190.82.