WASHINGTON - Cheaper gas has yet to cause consumers to spend enough on other goods to boost the slumping economy.
Americans barely increased their spending at retail businesses this spring, leading economists to predict slower economic growth in the April-June quarter.
But the news from a spate of government data Thursday wasn't all bad. Consumers spent more in May on cars, appliances and furniture - big purchases that help drive growth. Businesses continued to restock this spring at a healthy pace.
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In this May 30, photo, shoppers walk through the South Shore Mall in Braintree, Mass. U.S. retail sales declined in April and May, pulled down by a sharp drop in gas prices. But even after excluding volatile gas sales, consumers increased their spending only modestly.
And wholesale prices outside of gasoline costs remain stable, which means consumers can expect inflation to stay mild.
If gas prices stay low, Americans are likely to spend more freely this summer on other goods, from autos and furniture to electronics and vacations, that fuel economic growth. Gasoline purchases tend to provide less benefit for the U.S. economy because some of the money goes to oil-exporting nations.
"The continued fall in gasoline prices should support consumption by freeing up cash to be spent on other items," said Paul Dales, senior U.S. economist at Capital Economics.
Ian Shepherdson, chief U.S. economist at High Frequency Economics agreed. "The drop in gas prices means summer spending will accelerate," he said.
Retail sales fell 0.2 percent in May and April, the Commerce Department said. It was the first back-to-back decline in two years. But overall sales were pulled down by a 2.2 percent decline in gasoline station sales, reflecting the lower prices.
Excluding volatile gas station sales, retail sales grew just 0.1 percent in May and dipped slightly in April.
Consumers reduced spending in May at building supply stores, such as Home Depot, and general merchandise stores, a category that includes Wal-Mart and Target.
Auto sales rose solidly, one of the few positives in the report. Consumers also spent more on electronics, clothing and furniture.
Much more spending is needed to lift to an economy that has limped along since the Great Recession ended three years ago. Hiring has slowed sharply this spring. And unemployment remains high at 8.2 percent.
Wage increases are trailing inflation. And Europe's debt crisis has kept investors and companies on edge.
"All these things are making people feel uncomfortable about spending," Christopher said. "It is obvious that consumers are starting to hold back in the second quarter."
Christopher expects the economy to grow at an annual pace of 1.8 percent in the April-June quarter, just below the first quarter's annual pace. That's roughly in line with other economists' forecasts.
The one major positive development in the past two months is that gas prices have tumbled.