Thursday, August 13, 2009

Retail Sales in U.S. Unexpectedly Declined in July (Update2)

By Timothy R. Homan

Aug. 13 (Bloomberg) -- Sales at U.S. retailers unexpectedly fell in July as a boost from the cash-for-clunkers automobile incentive program failed to overcome cuts in other spending.

The 0.1 percent decrease in sales, the first drop in three months, followed a revised 0.8 percent gain in June that was larger than previously estimated, Commerce Department figures showed today in Washington. Purchases excluding automobiles fell 0.6 percent, also more than anticipated.

Today’s report underscores the threat to spending from the continued deterioration in the job market; a separate government report today showed more Americans than forecast filed claims for unemployment insurance last week. Retailers such as Wal-Mart Stores Inc. and Macy’s Inc. are cutting costs and inventories to bolster profits as households cut back on non-essential items.

“Until we start seeing job growth, consumers are still going to be very cautious,” said Michael Gregory, a senior economist at BMO Capital Markets in Toronto, which accurately forecast the drop in purchases excluding automobiles. “It’s premature to talk about the sustainability of a recovery,” he said, until there’s “follow-through on the demand side.”

The Labor Department said today that 558,000 people filed first-time claims for jobless benefits last week, up from 554,000 the week before.

Stocks, Treasuries

Stocks pared gains and two-year Treasuries erased their losses after today’s reports. The Standard & Poor’s 500 Stock Index rose 0.2 percent to 1,007.75 as of 9:41 a.m. in New York after futures climbed as much as 1.3 percent earlier. Two-year yields were at 1.14 percent after reaching 1.19 percent before the figures were released.

Retail sales were projected to rise 0.8 percent after an initially reported 0.6 percent gain in June, according to the median estimate of 76 economists in a Bloomberg News survey. Forecasts ranged from a decline of 0.9 percent to a gain of 2 percent.

Excluding automobiles, the drop in sales was the biggest since March. They were forecast to increase 0.1 percent, according to the survey median.

Americans cut back on furniture, electronics, building materials, groceries and sporting goods in July, according to the report. The drop in sales at department stores, at 1.6 percent, was the biggest this year.

Price Impact

A drop in prices probably also contributed to a decline in revenue at service stations. Filling station sales decreased 2.1 percent. Regular unleaded gasoline averaged $2.53 a gallon at the pump in July, down 11 cents from the prior month, according to AAA.

Excluding gasoline, retail sales rose 0.1 percent following a 0.3 percent gain.

The government’s cash-for-clunkers plan did boost auto sales, confirming industry data released earlier this month. Purchases at dealerships and parts stores climbed 2.4 percent last month, the biggest gain since January.

Industry data showed sales of cars and light trucks rose to an 11.2 million annual unit pace in July, the highest since September, after the government offered credits of up to $4,500 to trade in gas-guzzlers for more fuel-efficient vehicles.

Auto Incentives

President Barack Obama last week signed into law an emergency measure giving an additional $2 billion to the cash- for-clunkers program after the original $1 billion ran out three months earlier than projected. The infusion of funds was intended to extend the program through August.

Excluding autos, gasoline and building materials -- the retail group the government uses to calculate gross domestic product figures for consumer spending -- sales dropped 0.2 percent after no change in June. The government uses data from other sources to calculate the contribution from the three categories excluded.

Wal-Mart, the world’s largest retailer, today reported profit that exceeded some analysts’ estimates after managing inventory to lower costs. Comparable-store sales trailed the company’s forecast.

Macy’s, the second-biggest U.S. department store chain, said yesterday it cut inventories 7.5 percent in the second quarter from a year ago as sales dropped.

Karen Hoguet, chief financial officer at the Cincinnati- based company, said on a conference call yesterday that Macy’s is “cautiously optimistic” its sales trends will improve.

Job Losses

The economy has lost about 6.7 million jobs since the recession started in December 2007, the worst of any downturn since World War II. GDP contracted at a 1 percent annual rate in the second quarter, the fourth consecutive drop.

Consumer spending, which accounts for 70 percent of the economy, is projected to grow at an average 1.6 percent pace through the first half of 2010, ending its worst slump since 1980, according to the median estimate of economists surveyed this month by Bloomberg News. Purchases rose at an average 3.5 percent pace in the decade before the current recession began in December 2007.

Fed policy makers yesterday said they will hold the benchmark interest rate “exceptionally low” for an “extended period” to help sustain a recovery. They also added “sluggish income growth” to the list of reasons why household spending is likely to be slow to rebound. Headwinds previously mentioned included job losses, tight credit and falling home values.

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