- The Washington Times - Wednesday, August 13, 2008

WASHINGTON (AP) – Retail sales fell in July, the weakest performance in five months, as shoppers shunned autos and other big ticket items.

The Commerce Department reported Wednesday that retail sales dipped 0.1 percent last month when a variety of economic woes combined to blunt the impact of billions of dollars in government stimulus payments to U.S. households.

It was the first decline since sales had fallen by 0.5 percent in February and it was a worse showing than the flat reading economists had been expecting. The new report did revise higher the estimate for June, showing sales rose by 0.3 percent that month rather than the 0.1 percent initial reading.

The weakness in July came after another big slide in auto sales as Detroit faced its worst sales month in 16 years. Automakers have been battered by the weak economy and record gasoline prices which have cut into demand for their once-popular sport utility vehicles and pickup trucks.

Excluding the big drop in autos, retail sales would have posted a 0.4 percent increase. While that was a positive reading, it was still the weakest showing for sales excluding autos in five months.

Much of what little strength there was in July came from a big jump in sales at gasoline stations, which were up 0.8 percent. That increase reflected surging prices rather than increased demand, however.

Analysts said the poor showing in July, the last month for bulk mailings of stimulus checks, raised concerns about consumer spending going forward.

“Cautious and uncertain consumers are watching their wallets and with the back-to-school shopping season under way, that does not bode well for retailers,” said Joel Naroff, chief economist for Naroff Economic Advisors.

For example, Macy’s Inc. said Wednesday that its second-quarter earnings dropped slightly and it warned that full-year profits will be below Wall Street expectations.

On Wall Street, stocks fell for a second session after the retail sales report and oil prices rose.

In other economic news, the Labor Department reported that surging oil prices helped to push up import prices by 1.7 percent in July and left import prices up by 21.6 percent compared to a year ago, the biggest year-over-year reading on record.

Gasoline pump prices hit an all-time high during the month at $4.11 per gallon. Without the big rise in gasoline station sales, retail sales would have fallen by 0.2 percent in July.

The disappointing performance of retail sales meant that the consumer sector, which accounts for two-thirds of total economic activity, got off to a weak start at the beginning of the third quarter. The government wrapped up distributing the bulk of the economic stimulus payments for a total of $92 billion through the end of July.

The Bush administration and Congress rushed a $168 billion package of stimulus payments to households and tax breaks for businesses through Congress at the beginning of this year. They were hoping to keep the worst slump in housing in decades and a severe credit crunch from pushing the country into a deep recession.

The stimulus payments, which the government started distributing in late April, have had only a limited impact on consumer spending. Their benefits have been blunted by a surge in gasoline prices that was occurring at the same time.

Studies have shown that so far about only 20 percent of the stimulus checks have been spent with consumers choosing to save much of the rest of the payments. The administration argues that the checks will get spent in coming months, helping to lift economic activity for the rest of the year.

Private economists are not as optimistic. Some believe that the effects from the stimulus will fade after the current quarter and activity in the final three months of this year and the first three months of next year will slump dramatically. Some economists believe that the gross domestic product will contract in both quarters, fulfilling the classic definition of a recession.

Democrats in Congress have begun to push for a second stimulus package. So far, the Bush administration has opposed it in part over concerns about what further stimulus activity will do to the budget deficit. The administration is already projecting the budget gap will hit a record of $482 billion next year.

For July, the retail sales report showed that sales at department stores and other general merchandise stores rose by 0.3 percent, just half the 0.6 percent June increase. Sales at restaurants and bars, which have been hit hard by the current slowdown, dipped by 0.2 percent in July after a modest 0.3 percent June gain.

Sales at furniture stores, which have been hurt by the steep slump in housing, rose by 1 percent in July but that followed a 1.2 percent decline in June.

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