Consumers Cut Back on Spending in May

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Americans, uninspired by cool weather and feeling fresh concerns about the economy, spent with caution in May after a tepid April.

Retailers' May sales reports, released Wednesday, underscore how fragile the consumer spending recovery remains.

A mix of stores found business challenging during the month. Department store chain Stage Stores Inc. and teen merchant Wet Seal Inc. both reported declines in revenue at stores open at least a year.

Costco Wholesale Corp. is reporting a gain slightly below Wall Street expectations. Gap Inc. reported a small gain overall, but its namesake chain in the U.S. saw revenue decline. The results are being compared with depressed spending a year ago.

Among the bright spots was Victoria's Secret parent Limited Brands Inc., which reported a bigger-than-expected increase.

Revenue at stores open at least a year is a key indicator of a retailer's health. Another report from Mastercard Advisors' SpendingPulse showed that shoppers took a pause as they cut back on almost everything from appliances to footwear and clothing at the mall. SpendingPulse measures spending in all forms including cash from May 2 through Saturday.

Cool weather and a quirk in the calendar - a late Memorial Day weekend that hurt May's business but should boost June's figures - dampened spending. But weakness in the past six weeks is due to more than weather and calendar flukes, analysts said. They cited unemployment, stock market jitters and the dwindling of government-funded rebates on energy-efficient appliances.

"May was pretty lackluster. It looked like consumers were coming out of their lethargy. There seemed to be a fledging spending recovery," said Ken Perkins, president of research firm RetailMetrics "But that is called into question."

"I don't think you can explain away all the weakness just based on the calendar shift," said Michael McNamara, vice president of research and analysis for SpendingPulse.

The lackluster May and April, follow a solid first quarter when shoppers opened their wallets more and showed more willingness to pay full price as they took comfort in a rallying stock market and signs of economic recovery. But fears that a debt crisis in Europe could hammer global growth are causing heavy declines on Wall Street and raising concern that the inroads made in the U.S. economic recovery could unravel. The Conference Board's consumer confidence index improved in May for the third straight month, though it remained below what's considered healthy. While the measure included volatile days on Wall Street, it excluded the 376-point plunge on May 20, its worst one-day drop in more than a year. Now there's concern consumer confidence could fall back down if stock declines continue.

The Dow fell 7.9 percent for the whole month, its worst May since 1940. Now economists worry that businesses will limit hiring.

Robert Yerex, an economist at Kronos, a work force management company that tracks hiring among 69 large retailers, said stores didn't hire as many workers in May as April. "There's concern about a double-dip recession," he said.

Costco said Thursday that revenue in stores open at least a year rose 9 percent in May. Analysts surveyed by Thomson Reuters, on average, expected revenue in stores open at least one year to rise 9.7 percent.

Gap Inc. had a 1 percent increase, helped by business overseas, a little better than the 0.6 percent gain that analysts had expected. It's namesake business in North America was down 2 percent compared with an 11 percent drop a year ago, and Banana Republic North America's business was up 1 percent, compared with a 14 percent decline a year ago. Old Navy's North American business posted a 1 percent increase, compared with a 3 percent gain a year ago.

Gap's international business rose 8 percent in May, compared with a 7 percent drop a year ago.

Stage Stores suffered a 2.9 percent drop in May, below expectations for a slight increase of 0.5 percent.

Wet Seal reported a 5.3 percent decline, though it was smaller than the 6 percent drop that Wall Street forecast.

Limited, however, enjoyed a 5 percent in May, above the estimate for a 2.1 percent gain.

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