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Morici: Economy Flirting With Recession

For the second month in a row, retails sales pulled pack in May. The private sector continues to struggle from weak demand, the economy is clearly slowing, and the pace of jobs creation will likely stay lethargic through the summer.

In May, lower gasoline prices did pull down retail spending but sales of consumer basics, such as groceries, health and personal care products, and general merchandise sold in department and variety stores were down. Restaurants and bars saw a drop, too. Overall, retail sales were down by 0.2 percent in both April and May.

Regarding the broader economy, flagging retail sales in April and May, should be evaluated alongside stagnant wages for the last three months, falling productivity and factory orders, and declining prices reported by many manufacturers and service establishments polled by the Institute for Supply Chain Management.

Businesses are slashing prices to maintain volumes, cutting back on new orders and likely have more workers than they need. Consumers are trimming revolving credit and becoming more cautious. Overall, if sentiment and spending does not turn up in June and July, the economy is headed for a period of contraction — negative growth and a mild recession.

Particularly alarming, these data do not bare the full weight of the slowdown in Europe, which will grip the U.S. economy more significantly in the summer months.

At the very best, economic growth will remain subpar and new jobs creation anemic, and the private sector continues to struggle. Layoffs will increase and unemployment will rise unless more adults quit the labor force.

Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and widely published columnist.

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Peter Morici is a professor at the Smith School of Business, University of Maryland, and former Chief Economist at the U.S. International Trade Commission.Twitter @pmorici1