Last Updated Jul 14, 2010 9:54 AM EDT
Consumers Just Hanging On
Much of the weakness in retail sales remained concentrated in big ticket purchases such as vehicles and building materials. Spending on home remodeling, in particular, tapered off fairly sharply with the end of the home-buyer tax credits on April 30th.
Core retail sales, which excludes motor vehicles, building materials, and gasoline, were up 0.2 percent, but have essentially been flat for the two months combined. This is important as it suggests that the U.S. consumer is still hanging on, albeit by a very thin thread.
Summer Spending To Be the Test
The real concern is spending over the summer, especially now that Congress has failed to extend unemployment insurance, nearly all of which was being spent the second it hit the bank accounts of the long-term unemployed. More than one million workers lost their benefits July 1, and more will soon join them. The only hope is for a more broad-based and self-feeding pick-up in employment, which has been a bit like waiting for Godot.
Other sources for additional spending are saving, which has increased a bit in recent months, but is still abysmally low; mortgage restructuring, which has accelerated in response to record-low mortgage rates but remains out of the reach of the one-quarter of home owners who are underwater on their mortgages; and modestly lower energy prices. However, falling prices at the pump are more a reflection of weak consumer demand and de-leveraging by households than a stimulant. Indeed, driving over the Fourth of July holiday week was subdued, to put it nicely.
The Bottom Line
The U.S. economy has lost substantial momentum since late last year, as fiscal stimulus plays itself out. The key will be for the private sector to pick up where the public sector left off, which is occurring, but at a snail's pace.
Diane Swonk, chief economist at Mesirow Financial, talks to CBS MoneyWatch twice a week about the day's top economic news and developments. Her responses are edited for clarity and length.