Retail Sales Drop 1.2 Percent In May (TIF, SBUX)

The consumer recovery may indeed be an illusion. Retail sales plunged in May by the largest amount in eight months. Consumers cut back on everything from cars to clothing. With consumers accounting for roughly 70 percent of GDP, this data raises worries about the sustainability of the economic recovery. The Commerce Department said that spending fell 1.2 percent last month. Auto sales dropped a sharp 1.7 percent. Excluding autos, sales were down 1.1 percent. The 1.2 percent decline in May sales was the largest decline since sales fell 2.2 percent in September. Analysts were looking for sales to remain in positive territory. Sales at hardware stores plunged 9.3 percent while department store sales fell 1.8 percent. The drop in hardware sales seems to be connected with the expiration of the homebuyers' tax credit. As consumers battle high unemployment and sluggish home prices, consumer spending may continue to be weak. This bodes ill for companies such as Tiffany & Co. TIF and Starbucks SBUX.