- The Washington Times - Thursday, August 12, 2004

Shoppers who disappeared from the stores in June returned in July, snapping up cars and other big-ticket items while raising hopes the worrisome economic slowdown in the early summer will not last long.

The Commerce Department reported yesterday that retail sales rebounded by 0.7 percent last month. Consumer demand for autos was strong with the return of attractive incentive offers from dealers.

In other good news, the Labor Department reported that the number of laid-off workers filing new claims for unemployment benefits fell by 4,000 last week to 333,000, the smallest total in five weeks.

Economists said both reports should help relieve worries that an early summer slowdown could broaden into a more serious threat to the economic recovery.

That concern was heightened by last week’s report that the economy created just 32,000 jobs in July, far below the 200,000-plus jobs analysts expected.

“Consumers are still spending their money and that points to solid growth ahead,” said Joel Naroff, head of Naroff Economic Advisers.

The July sales rebound was smaller than the 1 percent advance forecast. But the government also revised its original estimate of a 1.1 percent plunge in retail sales in June, to show a decline of 0.5 percent.

Analysts said July’s gain and June’s smaller decline presented a more comforting picture that consumer spending, which accounts for two-thirds of total economic activity, was not threatening to collapse.

The second straight weekly decline in new claims for jobless benefits raised hopes the labor market will show improvements in August after job creation nearly ground to a halt in July.

Rising job gains are seen as critical to supporting future gains in consumer spending.

“Hopefully, the job market will revive more fully and provide the support for consumers to pick up their spending as well,” said Mark Zandi, chief economist at Economy.com.

In a third report yesterday, the Commerce Department said business inventories rose by 0.9 percent in June, the biggest increase in four years.

Analysts said the upward revision to sales activity in June should lead to a revision to overall economic activity for the second quarter, to about 3.4 percent. That would compare with the original estimate of 3 percent growth in the gross domestic product. The GDP had expanded at a 4.5 percent rate in the first three months of the year.

The July increase in retail sales was led by a 2.4 percent jump in auto sales after a 3 percent drop in June. Dealers then renewed offers of financing incentives that lured back buyers.

The strength in July sales and the declines in jobless claims provided evidence the economy was coming out of what Federal Reserve Chairman Alan Greenspan termed a “soft patch” in June.

The Fed on Tuesday boosted interest rates for the second time this year. Minutes of the Fed’s deliberations in June, when it raised rates for the first time, show policy-makers believed they had laid the groundwork for a vigorous economic expansion with an extended period of the lowest interest rates in more than four decades.

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