Energy and Auto Sales Lifted U.S. Retail Sales in July

For Immediate Release:

August 13, 2010

Contact:AP

NY Times

Retail sales managed a modest increase in July after two consecutive monthly declines, but the strength was concentrated in higher sales of autos and gasoline. Most other retailers saw their sales fall.

The Commerce Department said Friday that sales rose 0.4 percent last month, while sales excluding autos were up 0.2 percent. Both figures were slightly below expectations.

The broad declines outside of auto and gas sales offer more evidence of a slowing recovery. The concern is that spending will slow further in the second half of this year as households struggle with high unemployment and lackluster job growth.

The July increase in retail sales followed declines of 0.3 percent in June and 1 percent in May. Sales had surged 2.1 percent in March but since that time consumer spending, which accounts for 70 percent of the economy, has weakened.

The major bright spot was a 1.6 percent rise in sales of motor vehicles and parts. It was the best showing since a 6.6 percent surge in March.

Summer promotions and easier credit lured shoppers back to car buying in July. The industry sold more than a million cars and light trucks. That was 5.1 percent higher than in July 2009. Last year auto sales fell to the lowest level in three decades.

Sales at gasoline stations rose 2.3 percent in July, the biggest jump since last November. But much of that strength reflected higher gas prices. Excluding auto sales and gas, retail sales would have fallen 0.1 percent in July. That compares with a 0.2 percent increase in June when excluding autos and gasoline.

The July figures reflected widespread sales declines. Sales were down 1 percent at department stores and also dropped at specialty clothing stores, furniture stores, hardware stores and appliance stores.

In a second report, the government said consumer prices rose in July by the most since last August as energy costs increased for the first time in five months.

The Labor Department says the Consumer Price Index, the government’s most closely watched inflation measure, increased by 0.3 percent in July, after three months of declines. Wall Street economists expected a smaller increase.

In the last year, consumer prices rose 1.2 percent, the department said. That was up slightly from last month’s 1.1 percent pace but still a mild increase. The weak economy is keeping prices in check.

One small benefit of the weak economy is that it is keeping prices in check. Consumers are spending cautiously and saving more, which makes it harder for companies to raise prices.

Excluding volatile food and energy prices, the so-called “core” index increased by 0.1 percent in July, as the cost of housing, clothes, and used cars and trucks all rose. Core prices over the previous 12 months moved up by 0.9 percent for the fourth consecutive month. That was below the Federal Reserve’s inflation target and is the slowest pace in 44 years.

July’s increase in consumer prices may assuage concerns, raised in recent weeks by some Federal Reserve officials, that the economy is moving toward deflation. Deflation is a widespread and prolonged drop in the price of goods, real estate and stocks. It also reduces wages and can make it harder to pay off debts.

The country’s last serious case of deflation was during the Great Depression.

Most economists do not believe deflation will happen. But they are watching consumer prices closely for any signs of it.

Meanwhile, tame inflation allows the Federal Reserve to keep the key interest rate it controls at a record low of nearly zero percent in an effort to bolster economic growth. The Fed usually fights rising inflation by raising rates.

Also on Friday, the Commerce Department reported that inventories held by businesses rose for a sixth month in June but sales declined for a second month.

Inventories increased 0.3 percent in June, but sales fell 0.6 percent after an even larger 1.2 percent sales decline in May.

The weakness in sales raises concerns about whether companies will continue increasing inventories. Inventory rebuilding had been an important source of strength driving the economic rebound.

Businesses had been rebuilding their inventories after slashing them aggressively during the recession. But if consumer demand weakens further, businesses could start cutting back. That would mean fewer orders to factories and weaker output for manufacturers.

The consecutive declines in sales in May and June followed 13 straight increases in total business sales. The June decrease reflected less demand for manufacturers, wholesalers and retailers. A separate report Friday showed that sales at the retail level rebounded in July but the strength was concentrated in higher demand for autos and gasoline.

The 0.3 percent rise in inventories during June followed an increase of 0.2 percent in May. It reflected a rise in retail inventories of 0.8 percent and an increase of 0.1 percent in wholesale inventories. Stockpiles held by manufacturers slipped 0.1 percent in June.

The inventory to sales ratio edged up to 1.26 in June from 1.25 in May. That means it would take 1.26 months to exhaust inventories at the June sales pace.

Posted in