Retail sales decline, jobless claims rise

Consumers retrenched last month as sales at U.S. retailers declined in July despite the flurry of late-month auto purchases spurred by the “cash for clunkers” program. The unexpected dip raised questions about the timing of the widely anticipated economic recovery, especially as first-time claims for jobless benefits unexpectedly edged higher last week.

After increasing by an upwardly revised 0.8 percent in June and 0.5 percent in May, sales at U.S. retailers declined 0.1 percent in July, the Commerce Department reported Thursday. Compared with July 2008, retail sales last month were down 8.3 percent. Excluding sales of automobiles, which jumped by 2.4 percent in July, retail purchases fell by 0.6 percent last month.

July sales declined at department stores, furniture outlets, gasoline stations, electronics and appliance stores, building-materials dealers and food and beverage stores. Besides the jump at auto dealers, sales increased modestly at clothing stores and at restaurants and bars.

“The bottom line, however, remains that sales are trending about flat. This is a dramatic improvement from the steady, large declines of the second half of last year and encouraging in the face of ongoing declines in employment and aggregate wage income,” said Scott Hoyt of Moody’s Economy.com.

So-called “core sales,” which exclude revenues from gas stations and auto dealerships, declined for the fifth month in a row, causing concern about consumption’s contribution to economic growth this quarter. Consumer spending represents more than 70 percent of the U.S. economy. The year-over-year sales decline in core sales set another record in July.

“Core sales continued to disappoint, setting up a weak third quarter for consumption outside the auto sector,” said Adam G. York, an economist at Wells Fargo. Last month’s unexpectedly large decline in retail sales, excluding autos, resulted from “consumers shift[ing] dollars to pay for their new vehicles, instead of other purchases,” he said.

Consumer spending remains constrained because the economy has shed 6.7 million jobs since the recession began in December 2007.

Laid-off workers filing first-time claims for unemployment benefits edged up last week, but remained well below the peak levels reached in March, indicating that the recession may be bottoming out and the labor market may be moving toward stability, analysts said.

Initial claims for jobless benefits unexpectedly climbed a modest 4,000 last week, reaching 558,000, the Labor Department reported Thursday. The number of people collecting regular, continuing unemployment benefits declined by 141,000 to 6.2 million for the week ending Aug. 1.

“One week does not a trend make, and the labor market is gradually moving toward stability,” said Andrew Gledhill, an economist at Moody’s.

But the labor market isn’t there yet, Mr. Gledhill emphasized.

“Even though progress has been made,” he noted, “there is still a long way to go before the labor market stabilizes,” which would occur when initial claims reach around 350,000.

Mr. Gledhill described the 141,000 decline in continuing regular claims as “a phantom signal of labor market improvement, owed primarily to the ongoing trend of the unemployed exhausting benefits and rolling onto supplemental benefit programs.”

In a separate report, the Commerce Department revealed that businesses reduced their inventories by 1.1 percent in June, the 10th straight month of decline, as they continued to whittle down their stockpiles to bring them in line with sales.