Surprise dip in US retail sales triggers economy worries

US retail sales fell unexpectedly in April, official figures showed today, dashing hopes of a sustained rebound in consumer spending after the conflict in Iraq.

Retail sales dipped 0.1% last month to $309.5bn (£191bn), following a revised 2.3% increase in March, the US commerce department said. Excluding vehicle sales - which can vary widely from month to month - retail sales fell 0.9%, the biggest drop since the September 11 attacks.

April's weak sales figures suggest that the stubbornly high jobless rate has chipped away at consumer confidence. The US unemployment rate jumped to 6% in April, as businesses cut jobs for the third month running.

Half a million jobs have been lost in the last three months in what economists have dubbed the jobless recovery - mainly because the world's largest economy is not growing fast enough to keep up with newcomers to the job market. The loss of jobs may slow wage gains that are necessary to keep consumer spending - which accounts for more than two-thirds of the economy - from faltering.

Economists had expected retail sales to rise 0.4% to $310.7bn after March's increase, pinning hopes of a world upturn in the second half of the year largely on US consumers. Crudely speaking, more consumption will lead to higher investment, which in turn will boost output and employment and finally spur a US growth that could become the engine for the world economy.

The Federal Reserve Board last week left interest rates at a 41-year low of 1.25% in the hope that the low cost of borrowing will spur consumer spending and business investment. But most economists see little prospect for strong growth in the US this year. The consensus forecast for US growth in 2003 dipped 0.2% in March to 2.4%, the Bank of England said last month.

Commenting on today's sales news, Bob Gay, global head of fixed income strategy at Commerzbank Securities, New York, told Reuters: "This report is a major disappointment related to the prospects for economic growth this year. The consumer has downshifted to a much more cautious mood. The cutbacks in spending seem to be broad based. This is a very important report. April is the first month of the quarter; from here it will be hard to get out of the hole for the quarter."